Military Personnel Debt Consolidation

The Department of Defense is worried. While American service personnel often face danger overseas, they and their families also are being exposed to danger increasingly on the home front.

Located near military bases and housing communities are the common signs: “Easy Credit”, “Pay Day Advances”, “Fast Cash” and “Check Cashing”. Not so clearly stated on these same advertisements are the smaller words “accumulated interest”. This is a serious situation because – nowadays - almost 1 in 5 military personnel are relying on payday-type loans! As military service time stretches out and civilian career opportunities (especially paychecks) are missed, armed service members are forced into borrowing.

So what are “payday” loans? Lenders who offer such “services” simply are places that lend money to anyone who has a job and a checking account. The borrower writes a check or signs an electronic debt agreement secured by an anticipated future paycheck. Unfortunately for borrowers, lenders are not all that concerned with your check, but rather with the interest that will accumulate by extending your loans as long as possible.

Though the interest rates may change, the figures shown below are not unusual terms for short-term payday loans:

• An average sized loan is $350, and it packs a whopping 390-780% annual rate of interest!
• $100 loan = $25 interest for a two week period.
• 9 out of 10 borrowers use a payday service more that once… on average, five times per year.
• Renters make up 60% of all borrowers, with an average annual income of less than $19,000.

Security Risk

The debt problem faced by military personnel is enormous. Especially in these times of terrorism concerns, debt has serious effects on the preparedness of servicemen and women. One national news outlet reported that a particular soldier’s debt had swollen from a loan amount of $500 to five times that amount! With more than 15,000 loan shops across the nation, the temptation to borrow is not going to disappear any time soon.

Still, opponents of these short-term loans are working aggressively to protect against what they view as predatory lending practices. 15 states have banned some form of these short-term loans, while 11 have banned payday loans altogether. The Defense Department also is requesting limits on loan interest rates for its personnel. On the other hand, 25 states specifically allow these high rate loans, so there is still a long way to go. For information on the laws in your state, check out the separate debthelp.com article on payday loans.

Anyone - military or civilian - who is worried about debt should seek advice and credit counseling. The problem is not going to get better on its own. In general, it is better to seek more traditional methods of help than to buy into ‘loan sharking’.

Credit counseling is available to all military personnel, such as through the Navy/Marine Relief Society, or exit and adjustment counseling through the VA. Unfortunately, many people feel inhibited by the honor code of the service -- the pride of doing well hinders the need for debt help.

Military personnel in a time of war may be in dire need of debt counseling but are unable or unwilling to seek help. If you are not in active duty, please consider trying to help those who are. Working with military clients to arrange budget plans, assisting with utilities, or even contacting Congress about a proposed cap (36%) on the amount of interest loan companies can charge military personnel, can positively impact many lives.