Servicemembers Civil Relief Act

It’s been around since 1940 and was initially called the Soldiers’ and Sailors’ Civil Relief Act, though its origin dates back to the Civil War. Congress passed legislation that gave relief to soldiers who could not pay their debts while at war. Union privates made $13 a month in the Civil War, which was $2 more than their Confederate counterparts. That wasn’t a lot, but at least they didn’t have to deal with collection agencies threatening to ruin their credit score. The Servicemembers Civil Relief Act, limits those hassles and provides other protections for active-duty personnel. The law bans creditors from proceeding with foreclosures, evictions, garnishments and repossessions, and other actions until 60 days after a service member returns from active duty. When service members are called to active duty, lenders must set a maximum interest rate no higher than 6%. Despite such protection, studies show that more than one in four military families carry $10,000 or more in credit card debt, and 10% of families owe $20,000 or more. More than half of enlisted and junior non-commissioned officers reported they often make only minimum payments on their credit cards.

Debt consolidation

Several consumer debts are rolled into a single new one in debt consolidation. You can use a balance-transfer credit card, debt consolidation loan, home equity loan, or 401(k) loan.

Why you might choose it:

· To get a lower interest rate than you’re paying now, which saves you money and can help you pay off your debt sooner

· To cut the number of payments, you’re juggling

· When the debt you’re trying to pay down is a manageable amount and type

» How to pay off your debt: A three-step strategy

Debt settlement

Debt settlement is risky because you withhold payments from a creditor and then, once your account is severely delinquent, try to negotiate a smaller payment to satisfy the debt.

But withholding payment trashes your credit scores and opens you to being sued for payment — and there’s no guarantee that the creditor will agree to settle.

You can try debt settlement on your own or hire a company, but beware: This field is rife with shady players. The Federal Trade Commission recently ordered 11 such companies to halt their marketing, saying they took tens of millions of dollars from consumers and gave them little benefit.

Why you might choose it:

· Try this only if you have an account already long delinquent or in collections, and you think the creditor might accept a partial payment. You have little to lose because the damage to your credit score is already done.

Military & Veteran Debt Consolidation Loan Options

If you are looking for a debt reduction plan, a good place to start would be to examine the interest rates you pay on your current bills, especially credit card debt, and compare those against the interest rate charges for a debt consolidation loan. Debt consolidation is taking out one loan to pay off several smaller loans. It is most often used to eliminate credit card debt because debt consolidation loans have far lower interest rates and agreeable terms. For example, depending on your credit history, you could get a debt consolidation loan of 8%-10% interest rate to wipe out credit card debt that probably has reached 25%-30%. There are several types of debt consolidation loans – personal loans, home equity loans, balance transfer loans, loans from family or friends – each has its advantages and disadvantages.

  • Personal loan: This is the most common form of debt consolidation. You go to a bank, credit union, or online lender and ask for the amount you need to pay off credit card debt; they check your credit score and payment history and approve or disapprove your loan. Personal loans accounted for $305 billion in borrowing in 2019, an astounding 121% increase over 2018. Online lenders are doing most of the new business in this area.
  • Home equity loan: This loan has the lowest interest rates for one very important reason: You are putting your home up as collateral. If you miss payments, you could lose your house. You get interest rates as low as 6% compared to the national average of 17% for credit cards.
  • Balance transfer cards: The attraction here is that you pay 0% interest for an introductory period (usually 6-18 months), giving you time to pay off credit card bills at no interest. However, it’s very difficult for people already in trouble with credit cards to qualify for a 0% interest card. If you qualify for one, you must pay off your debts in the allotted time, or your rate soars to 18%-20% or higher.
  • Family or friends: This could be the place to get the lowest rates and best repayment terms IF both sides trust each other and act responsibly. IF they don’t, this can ruin relationships and be a bad idea.

Conclusion:-If you’re not happy with any of these choices, you could consolidate your debt without a loan through a non-profit credit counseling agency. Credit counselors walk you through the steps of setting up a monthly budget and then recommend debt-relief options. One of those is a debt management program, which doesn’t require a loan and doesn’t consider credit score as part of the qualifying process. Debt management programs are a good way to eliminate debt, eventually increase your credit score, and relieve stress from financial problems. Counselors work with lenders to reduce the interest rate you’re paying and your monthly payment amount so that all debt is eliminated in a 3-5-year time frame.