How Veterans Can Qualify For Debt Consolidation

Debt consolidation for veterans: How to qualify

Military service entails making numerous sacrifices for one’s country, including financial sacrifices. If you find yourself in debt after you leave the service, you’re not alone. The good news is you don’t have to stay that way. There are several ways for veterans to eliminate debt more quickly, and one of the most effective strategies is debt consolidation.

Achieve explores how a debt consolidation loan can help veterans achieve debt freedom and what it takes to obtain one.

Key takeaways:

• Veterans may be able to use a personal loan or a home equity loan to consolidate debt.
• Consolidation can help lower your payments by transferring your debt to a new, more affordable loan.
• Eligibility requirements vary, and some lenders specialize in working with veterans.

Types of veteran debt consolidation loans

Debt consolidation loans work by consolidating your debts into a single new loan. The idea is to make your debts easier to pay. Your monthly payment may be lower, but you might also be able to lower your interest rate and get out of debt sooner, too.

In the military, you learned how to take stock of different situations and choose the best tool for the job. You can apply that same skill set to your finances as well. Veterans have a few different tools to tackle their debt:

VA debt help

The Department of Veterans Affairs helps certain veterans with repayment plans and other support for debts that you owe directly to the department itself. This usually occurs when the VA accidentally pays you benefits to which you are not entitled. For instance, perhaps you forgot to report changes in your family size that could affect your benefit payments.

The VA doesn’t offer assistance for other types of debt, such as credit card debt.

Personal loans to consolidate debt

One of the most common ways to consolidate debt is with a personal loan. On average, personal loan interest rates are lower than those of credit cards. Moving higher-interest credit card balances to a personal loan could help you lower your monthly payment and spend less money on interest as you repay your debt.

Additionally, personal loans typically have a fixed rate, which means your monthly payment will remain the same once the loan is approved and funded. In contrast, credit card rates are almost always variable, which means they can and do change. That means the payment amount could also change, as well as the overall cost of carrying a balance on a credit card.

Homeowners, get help with your high-interest debt

Use the equity in your home to consolidate debt, lower your monthly payments, and reduce your stress.

Home equity loans to consolidate debt

If you’re a homeowner and you have a certain amount of equity in your home, you may be able to use a home equity loan to consolidate your debt. If you qualify, a home equity loan could help you turn some of your home equity (the difference between your home’s value and the amount you still owe on your mortgage) into cash that you can spend.

Home equity loans are secured loans. That means you pledge something valuable (collateral) as a guarantee that you’ll repay the loan. In this case, your home is the guarantee. That guarantee lowers the risk of loss for the lender, which is why home equity loans are often one of the cheapest ways to borrow.

Eligibility criteria to get a veteran debt consolidation loan

Lenders set eligibility criteria for the loans they make. Each lender may set different requirements for a debt consolidation loan, so if you’re shopping around, don’t assume all lenders have the same expectations.

The criteria also vary for the different types of loans. Here are the two most common options for veterans.

Personal loan eligibility

Personal loans are usually unsecured loans. In other words, you’ll qualify based on your credit standing and financial situation, not on whether you own something valuable to borrow against.

The criteria to qualify aren’t strict or rigid. At a minimum, you’ll need to meet the lender’s credit score requirements and show that you have a regular source of income, such as Social Security payments or a job.

Home equity loan eligibility

Home equity loans have a few additional eligibility criteria in place because your lender will want to review details about your home and mortgage, in addition to your credit standing and finances. A key piece of information is how much home equity you have, because that will determine how much you could borrow.

All lenders set limits on how much they loan. There’s a dollar limit, and also a limit related to your home’s current market value. For instance, the lender may only allow you to borrow up to 80% of your home’s value, minus the outstanding balance of your mortgage.

Let’s say your home is worth $500,000 today, and you still owe $250,000 on your mortgage. If you qualify, you could borrow an additional $150,000 and stay under the 80% mark.

Again, the criteria to qualify aren’t hard and fast, and they are subject to change. You need to be a homeowner with sufficient equity to borrow against. You need to meet the lender’s credit score requirements, which may be higher than what you’d need for a personal loan. Because a home equity loan is a type of mortgage, you will likely need to provide proof of homeowners’ insurance. Additionally, if your home is located in a flood zone, you will also need to obtain flood insurance.

What’s next?

Make a list of your debts. Include the type of debt, the balance, the interest rate, and the payment amount. This information will help you determine how much you need to borrow, which debts you can consolidate, how much you can afford to pay each month, and whether debt consolidation is a suitable option for you.

This story was produced by Achieve and reviewed and distributed by Stacker.

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