Debt consolidation for veterans

Service members do a lot of growing up during their active duty years. But while you were learning how to do your part to defend our nation, there might not have been many opportunities to practice money management skills. In fact, when you transitioned to private citizen life, you may have found yourself paying for housing, utilities, healthcare, and other everyday expenses for the very first time. 

When it comes to managing debt, your military training can be a huge asset. You’ve learned how to be disciplined, make timely decisions, meet challenges, and take responsibility for your actions, and now you’re ready to reach the next financial level in your life.

A debt consolidation loan is one of many tools you can consider as an option for managing your debt.

What is debt consolidation for veterans?

Debt consolidation for veterans means taking a new loan and using it to pay off multiple smaller debts. Debt consolidation for veterans could make the debt more affordable. It may help stop a cycle of expensive borrowing. If credit card debt is a challenge, you’re far from alone. About a third of working-age veterans say excessive credit card debt is a top contributor to their financial stress. 

The idea is to choose a debt consolidation loan with better terms than the accounts you’ll pay off. Better terms can be lower interest rates, smaller payments, more time to repay, or some combination of those. 

Debt consolidation for veterans doesn’t reduce what you owe. But it usually reduces the number of bills you have to pay and could make your balances easier to pay off. 

Some lenders only work with veterans, and they often advertise debt consolidation loans for veterans. These loans generally work the same way as any other debt consolidation loan. There aren’t any official government debt consolidation loans meant specifically for veterans with credit card debt. 

Debt consolidation for veterans: an example

Let’s look at how debt consolidation could work. Suppose that you have three credit cards. Between them, your total balance is $14,750. 

You’re paying 25% on average in interest, and your total monthly payment is $450. If you keep paying the same amounts as your balances go down, you’ll end up paying $11,187 in interest. Assuming you stick to these monthly payments, here’s how long it will take you to pay off the three cards:

• Card A: 4 years, 8 months

• Card B: 6 years, 5 months

• Card C: 4 years

Here’s what it could look like if you consolidate the three balances with a loan for veterans that has an interest rate of 18%. We’ll make the loan amount $15,500 to cover a 5% origination fee. You could choose to pay off the loan over three or five years. 

Benefits of debt consolidation for veterans

Many veterans have trouble paying their bills in the first few years after leaving the military. Consolidating could help you get a handle on your finances and get rid of high-interest debt. You could also get one or more of these benefits:

• Lower interest rates

• Smaller payments

• More time to pay

• Fewer bills to pay each month

Another advantage is moving your debt from a variable interest rate (like most credit cards have) to a loan with a fixed interest rate. Credit card rates change along with the economy, making your cost and payment amount unpredictable. Fixed-rate loans have an interest rate that doesn’t change, so your payment stays the same until you pay off the loan. Achieve only offers fixed-rate loans.

One last benefit is that consolidating debt has the potential to improve your credit standing. That’s because high credit card balances can hurt your credit score, but loan balances don’t affect your credit standing in the same way. So even though you have the same amount of debt, changing the type of debt could have a positive impact.

Achieve isn't a Credit Repair Organization and doesn't provide or offer services or advice to repair, modify, or improve your credit.

Debt consolidation options for veterans

If you’re a veteran and you have VA-related bills, like medical co-pays or a VA home loan, you can seek help from the VA Debt Management Center. The VA doesn’t offer help for credit card debt.

Veterans with unsecured debts like credit cards, medical bills, and personal loans can consider a few different approaches. The right one depends on your qualifications and how much you owe. Here’s a quick rundown.

Personal loans

Personal loan interest rates tend to be lower than credit card interest rates. This makes them one of the most popular choices for debt consolidation loans for veterans. In fact, the number of personal loans that lenders approved rose by 7% from 2023 to 2024.

Like credit cards, most personal loans are unsecured. That means you qualify based on your credit standing and financial situation. Some lenders offer secured personal loans. To qualify for a secured loan, you'd need to have something valuable to borrow against (collateral). Many veterans use their vehicles as collateral.

Personal loans often range from $1,000 to $50,000, with repayment terms of one to five years. Most personal loans have a lender fee that you can pay out of pocket or have deducted from your loan funds. If a loan has no lender fee, expect the interest rate to be higher.

Read more: How to use a personal loan for credit card debt

Home equity loans

A home equity loan for debt consolidation can be a great way to streamline your bills and potentially lower the cost of your debt. Home equity loans and home equity lines of credit (HELOCs) tend to offer better terms than most personal loans because they are guaranteed by an asset (your home). Many veterans settle down and buy a home in their chosen location after leaving the service.  

If you own a home and have enough equity to qualify, a home equity loan may be a way to do debt consolidation with bad credit. (Home equity is your home’s value minus your mortgage balance.) If you’re using your home equity loan to pay off other creditors, you might be able to qualify with a lower credit score compared to what other loans require. 

A home equity loan or HELOC is a second mortgage. Home equity loan closing costs are similar to the costs for other mortgage loans. Most lenders charge a lender fee, and they may require a property appraisal, title insurance, and escrow services. Because of these additional requirements, home equity loans might not make sense for smaller amounts. But their low rates and longer terms make them a great choice for covering large expenses and keeping payments low.

A home equity loan is a one-time lump sum, and a HELOC is a line of credit that allows you to borrow, repay, and borrow more for a few years. 

Read more: HELOC vs. home equity loan: similarities, differences, and how to choose

VA cash-out refinance mortgage

The VA cash-out refinance is another way to use home equity for debt consolidation. With a cash-out refinance, you apply for a new mortgage that’s bigger than your current home loan balance. The lender pays off your mortgage and gives you the difference in cash that you can use to pay off other debts. 

You can refinance a VA or non-VA home loan. You’ll need a VA Certificate of Eligibility to qualify, which most veterans can easily get if they served on active duty for a certain period of time. There's technically no minimum credit score for a VA home loan, but lenders do have minimum credit score requirements. 

VA cash-out refinancing has several advantages. First, the VA may allow you to borrow more than you could with another type of mortgage. That means you could get more money to pay off debt. VA cash-out refinance loans also come with additional protections compared to other mortgages, such as extra support if you run into problems while repaying the loan. 

What is the Military Debt Consolidation Loan (MDCL)?

Some lenders offer a Military Debt Consolidation Loan (MDCL). There's no mention of this product on the VA’s website, and the VA doesn't back home equity loans. If a lender is promoting an MDCL cash-out refinance that’s only available to eligible veterans, it’s a VA cash-out refinance mortgage. 

Lenders often create informal names for specific loans they offer, similar to the way other companies have their own brand names for products they sell. In fact, there's no official Military Debt Consolidation Loan. Some lenders use this as a marketing term for their own version of a debt consolidation loan that they offer only to veterans.

Military debt solutions

If you’re still on active duty, you may qualify for special debt assistance through the Servicemembers Civil Relief Act (SCRA). You can request the interest rate on loans that you took out before you joined the service to be dropped down as low as 6%, for example. These protections don’t apply to veterans or retired military personnel.

Once you leave the service, you may still benefit from a few government debt programs for specific cases. If you have a VA loan, you can qualify for foreclosure prevention assistance, for example. If the VA accidentally overpaid benefits that you now owe, you may be able to pay back the money through a special repayment program. 

Credit counseling services for veterans

Many nonprofit credit counseling agencies offer free or low-cost help managing your debt. These agencies should also be aware of any extra benefits or options you may have as a veteran, such as if you have a VA loan. 

They can help you zero in on the best debt help options for your family, whether that’s with a debt consolidation loan, getting help from the VA, learning to budget, and so on. 

Balance transfer credit cards

Balance transfer credit cards let you move a balance from another credit card, at low or no interest for a period of time, usually 6 to 21 months. 

For example, if you’re still paying off a balance on your old military commissary credit card at an interest rate of 14.99%, moving it to a balance transfer card at 0% interest could allow you to make quicker progress in paying it off. That’s because more of your money will go toward paying down the balance rather than paying for interest. Expect to pay a balance transfer fee that offsets some of your savings. 

If you don’t clear your balance before the promotional interest rate expires, you might be tempted to do another balance transfer. This financial juggling can become a pattern that’s hard to stop. It’s sort of like spinning plates on sticks. Eventually, they will come down. Your best bet is to consider a balance transfer as a one-time strategy. And if you use one card to pay off another card, close the paid-off account to protect yourself from the chance of racking up more debt.

Debt resolution as an alternative for veterans

Debt resolution could be a better option for people who don’t qualify for a new loan or who can’t afford to repay their debts in full. Resolving debt means working out a lower debt payoff with your creditors. This is usually a lump sum but can sometimes be a series of payments. 

Anyone can negotiate their own debts. You can also work with a professional debt resolution company. Reputable companies have relationships with many creditors and may be able to get better results than you could get on your own. 

To negotiate a debt, you can make a single lump-sum offer. If you don’t have money to make an offer, you can save it up. If you work with a professional debt resolution company, they’ll set up a dedicated account for this purpose. Some creditors will agree to a series of payments. 

When you reach an agreement, you pay the discounted amount, and the rest of the debt is canceled. Creditors don’t always agree to settlements, but if they do, it could be a big help and a good alternative to bankruptcy. If you’re not insolvent, you may owe taxes on the forgiven debt. So it’s a good idea to speak with a tax advisor first. 

Debt resolution could be a good idea if you can’t afford to repay your debts in full without some degree of forgiveness. There's no minimum credit score requirement.

Steps to take before choosing debt consolidation

Debt consolidation should make your life easier. Before choosing a debt strategy, go through these steps.

1. What are my goals for debt consolidation?

Debt consolidation for veterans can help in a few different ways:

• Get a lower monthly payment

• Pay less interest over the long run

• Make fewer monthly payments each month

Think clearly about which of these goals matters most to you. There’s usually a tradeoff between a lower monthly payment and paying less interest. You might pay less each month by choosing a longer-term loan, for example. But this often means you’ll pay more interest overall by the time you fully pay off the debt.  

2. How much do I need to borrow to pay off my debts?

Add up the remaining balance of the debts that you’ll be paying off with a new debt consolidation loan. It’s a good idea to reach out to each lender and ask for a payoff statement, too. This gives you the most current amount you’ll need to pay off your debt after accounting for any interest that’s been added to your balance since your last monthly statement. 

3. Can I afford the payment on a debt consolidation loan?

Transferring your debts to a new loan means that your payment amount will change, too. Your payment could be higher or lower than what you’re used to paying. It’s a good idea to make sure you can still afford it. That’s particularly true if you’re choosing a shorter-term loan to pay less interest, which generally means making bigger payments. You can use online debt consolidation calculators to do the math for you. Check your monthly budget to see whether you’d be able to afford this monthly payment.

4. Can I qualify for a debt consolidation loan?

Each debt consolidation loan option may have different requirements depending on the lender and the type of loan. Most lenders look at the same basic qualifications. If you know in advance what these are, you can get a better idea of what debt consolidation loans might be a better fit for you. Here are some of the details you can check:

• Credit report. Check your credit reports to make sure they’re accurate. Lenders may check for things like bankruptcies or details on your other debts. 

• Credit score. Your credit score is one of the most important factors that lenders look at when qualifying you for a loan.

• Income. Lenders often check that you’re earning money consistently and that you’re earning enough to cover your potential loan payments on top of your other regular expenses.

The answers to these questions can tell you if consolidating will solve your problem. If so, here’s how to get a debt consolidation loan. If not, talk to a professional Debt Consultant about other options.