by Aidan Kang, CFA
Senior Writer
UPDATED: July 27, 2021

Just like everyone else, many military service members and veterans also have problems with debt. If they’re deployed, they don’t have the luxury to think about their credit card balances or the bills they have to pay. By the time they return home, they’re faced with a huge pile of debt. Below, we'll talk about what are the best debt consolidation for veterans.

Veterans have different financial circumstances. Some manage their debt and expenses well while others struggle to solve their financial problems. Fortunately, a veteran drowning in debt has options for debt relief, including a debt consolidation loan.

What is a Debt Consolidation Loan?

Managing multiple debts can be stressful. You’d have to remember the payment deadlines, amount, outstanding balance, and interest rate for each debt. If you’re a service member or a veteran, you don’t think of these things when you’re in a war zone.

You can make things a lot simpler with a debt consolidation loan. A lender lets you borrow a sizable amount of cash, which you can use to pay off all of your other debts. With a debt consolidation loan, you merge all your separate debts into one loan from a single lender. It eliminates the inconvenience of having to pay lenders separately. However, this option only makes sense if the interest rate you pay is lower than the combined rates you get from having multiple debts.

What are Your Best Options for Consolidating Debt?

1. Credit Card Balance Transfer Offer

If you have several high-interest credit card debt, you can apply for a new credit card with a balance transfer offer of 0% interest rate for a certain period (between 12 and 18 months). With this option, you’ll save a lot on the interest rate, which you can use to pay off your debt quicker. US Bank Visa Platinum Card offers a 0% APR for 20 months on balance transfers. Meanwhile, Citi Double Cash Card and Wells Fargo Platinum Card offer 0% APR for up to 18 months. One card is enough. It’s not recommended to apply for several balance transfer cards because it would trigger hard inquiries, which will lower your credit score.

2. Personal Loan

Several lenders, such as LightStream, Best Egg, and Sofi offer personal loans with fixed interest rates. It’ll allow you to roll multiple debts into one loan from a single lender. You can use it to pay unsecured debt, such as credit card balances, medical bills, and other personal loans. A personal loan’s interest rate will depend on your credit score and income. Lenders may offer lower interest rates to applicants with good credit scores.

Personal Credit Scoring System for FICO and VantageScores

These are the two credit score systems used by the three major credit reporting agencies: Experian, Equifax, and TransUnion. Every year, you’re entitled to get a free copy of your credit report from each credit bureau.

The military debt relief act offers financial protections for service members and their families. Under the Servicemembers Civil Relief Act (SCRA), the interest rates for different types of loans, such as car loans, mortgages, and credit cards, are capped at 6%. Under the Military Lending Act, there’s a cap of 36% interest for credit products offered to service members.

3. Home Equity Loan

It’s a type of loan that allows you to borrow cash against your home’s equity. Military Debt Consolidation Loan or VA Consolidation Loan falls under this option. You can take out a VA consolidation loan if you have an existing VA home loan and if the appraised value of your home is higher than the amount you owe on it.

You can take out a VA consolidation loan to refinance your mortgage and use the remaining amount to pay off your debt. Let’s say you owe $150,000 on your home, which has an appraised value of $200,000. You can refinance your mortgage to your home’s full value. With the figures presented above, you’ll free up $50,000 in cash, which you can use to pay off your debt.

4. Debt Management Program

You also have the option to consolidate multiple debts without taking a loan. You can work with a non-profit credit counseling agency, such as the NFCC. A credit counselor will help you set up a monthly budget and recommend a debt management program.

A debt management program doesn’t involve taking out a loan or a credit check. Your credit counselor will help you get rid of all your debt within a certain time frame (mostly between 3 to 5 years). Your counselor will negotiate with lenders to reduce your interest rate and the amount you pay every month.

5. Interest-Free Emergency Loans

If you have money troubles, you can reach out to a military relief organization. You might be able to get veteran debt relief grants or an interest-free emergency loan.

How Do Military Debt Consolidation Loans Work?

A military debt consolidation loan is a loan that is backed by the government. You have to obtain the loan from a standard financial institution, such as Navy Federal Credit Union, USAA, and Pentagon Federal Credit Union but the Veteran’s Affairs will guarantee the refinanced loan.

You can use the loan proceeds to pay off your unsecured debt, such as payday loans, credit card balances, and medical bills. Then you will make monthly payments to only one lender instead of paying different creditors.

A military debt consolidation loan is a cash-out loan. It means you refinance your current loan for more than the existing debt amount and take the difference in cash. You also need to factor in the closing costs, which are taken from the final amount that you get. So, if you have an existing loan of $150,000 on your home, you may qualify for a $200,000 loan (depending on your home’s appraised value). The closing costs will be taken from the difference, which is $50,000. You can use the remaining amount to pay off your other debts.

What are the Advantages of a Military Debt Consolidation Loan?

  • You can more easily qualify for a military debt consolidation loan if you are eligible compared to a traditional debt consolidation loan.
  • You can choose a longer repayment term, usually between 10 and 30 years.
  • You may receive up to 100% loan-to-value (ratio of the loan amount against the value of an asset).
  • You will pay a lower interest rate.
  • You will pay lower closing costs.
  • You don’t have to pay monthly mortgage insurance premiums.
  • There are no prepayment penalties.

What are the Disadvantages of a Debt Consolidation Loan?

  • You will secure the loan using your home. You may lose your house if you default on your payments. Such is the case when you take out a home equity loan. It also applies to personal loans where you used your house as collateral.
  • You have to pay closing costs, which means you’ll get less than the amount you expect when consolidating the debt.
  • A military debt consolidation loan may help you pay off your debt, but it won’t change your financial habits. Without discipline and financial prudence, your debt may resurface. It’s recommended to work with a credit counselor for you to learn more about financial planning and debt management.

How to Obtain a Debt Consolidation Loan for Veterans?

You need to meet certain requirements when applying for a military debt consolidation loan, including owning a home with equity. Lenders also have different credit requirements, and they may require you to provide a certificate of eligibility for a VA-backed loan. Some lenders cater to veterans with bad credit, while others offer loans to those with good credit only.

Lending Point, Avant, and One Main Financial offer loans for veterans with lower rates and flexible terms even if they have a bad credit score. Meanwhile, Lending Club, PenFed Credit Union, and Prosper require veteran loan borrowers to have a good credit score. On the other hand, the Navy Federal Credit Union and the USAA don’t require a minimum credit score.

What is VA Hardship?

Veterans who are struggling financially can turn to the VA hardship program. The Veteran’s Affairs offer assistance to veterans struggling from financial distress or those who suffer from the consequences of special circumstances, such as sudden loss of income or job loss. You can request financial hardship assistance for managing your existing VA copay debt or for exempting you from future copays (fixed amount paid for a health care service).

If you can’t afford to pay your current VA copay debt, then you have to set up a repayment plan so that you can pay your debt over time. You need to fill out the VA Form 1100 (Agreement to Pay Indebtedness) and send it to the nearest VA medical center in your area. Once approved, you’ll receive a coupon book and you’ll send your payments to the address written on the coupon. You can also pay in person at the nearest VA medical center's revenue office.

If you want to request debt relief for part or all of your copay debt, you need to submit the VA Form 5655 (Financial Status Report), along with a letter that explains why you need debt relief, to the nearest VA medical center.

If your income has decreased and you can’t pay future copays, you can apply for a VA hardship determination and copay exemption. You need to submit a VA Form 10-10HS (Request for Hardship Determination) and a letter explaining why you are making such a request to the nearest VA medical center. You can also call 866-400-1238 if you have any questions or if you need further assistance on your VA hardship application.


Just like regular consumers, active military members and veterans may also face financial problems at some point in their lives. If you find yourself struggling to pay multiple debts, a debt consolidation loan can help you get out of your piling debt as efficiently as possible. You have different options for consolidating debt, such as credit card balance transfer, personal loans, home equity loans, and a debt management program. All these options can help you regain control of your finances. Just make sure to compare your options by checking the interest rates, payment terms, closing costs, and other fees that you have to pay so you can find the best debt consolidation for veterans that suits your financial needs. There are different sources to turn to for help so do seek professional advice before committing to anything.