Guide to Debt Consolidation Loans for Veterans
If you are a veteran looking to get a loan for debt consolidation, there are a few options you may want to consider. There is no special government program for personal debt consolidation loans for veterans. However, many banks, credit unions, and online lenders provide debt consolidation loan options.
There is also a Department of Veterans Affairs (VA)-backed cash-out refinance loan for eligible service members, military veterans, and surviving spouses who own a home and have enough equity. If neither of these options is what you are looking for, there are other alternative debt relief solutions you could explore.
Here’s what you need to know about debt consolidation loans for veterans.
Understanding Debt Consolidation Loans for Veterans
While specific veterans’ debt consolidation loans don’t exist, there are other ways to consolidate your debt. Debt consolidation is when you take out a new loan to pay down other existing debts. A personal debt consolidation loan combines existing debt and bills into one loan. The benefits may include lower interest rates, simplified payments, and, usually, lower monthly payments. This could potentially help you get out of debt faster.
The main difference between a debt consolidation loan and a personal loan is the purpose of the loan. A personal loan is a type of loan that may be used for almost anything, including medical expenses, home renovation, and debt consolidation. Personal loans are generally unsecured, which means you don’t have to put up an asset as collateral.
While personal loans may be used for almost any purpose and come in different types, if you are looking to get a loan for debt consolidation, these loans let you combine existing debts to help pay them down. After approval for a debt consolidation loan, you may get a lump sum to pay down the other loans yourself or the lender may pay them off for you. Then you could have just one payment for the debt consolidation loan each month rather than multiple payments for different loans.
Personal loans and debt consolidation loans both typically have lower interest rates compared to credit cards. So if you have credit card debt, this might be a benefit for you.
Getting a Debt Consolidation Loan for Disabled Veterans
There are some options for debt consolidation loans for disabled veterans. If you are a disabled veteran with federal student loans, you may qualify for Total and Permanent Disability Discharge of your federal student loans. This program discharges totally and permanently disabled veterans from having to repay loans from the William D. Ford Federal Direct Loan Program, the Federal Family Education Loan (FFEL) Program, or the Federal Perkins Loan Program. It also relieves you from having to complete a TEACH Grant service obligation. To qualify for the program, disabled veterans must submit documentation from the VA, Social Security Administration, or a physician.
If you have VA benefit debt related to VA disability compensation, you may have additional options. These include repayment plans, a compromise offer, a waiver, or a temporary hardship suspension. You may contact the VA Debt Management Center to set up a repayment plan or adjust your current repayment plan if you need more time to pay down your debt.
Getting a Debt Consolidation Loan for Veterans With Bad Credit
There are also options for debt consolidation loans for veterans with bad credit. Some private lenders offer Military Debt Consolidation Loans (MDCLs), also known as VA consolidation loans. If you have a VA loan on your home, you may qualify for an MDCL. This is a debt consolidation loan to pay down all unsecured debts, which could include credit cards, medical bills, or payday loans. Because an MDCL is secured by your home, qualifying standards for an MDCL may be less stringent than for conventional consolidation loans, so veterans with bad credit scores may qualify.
VA consolidation loans are considered “cash out” loans. With a VA consolidation loan, you refinance your current loan for more than the amount owed and take the difference in cash. You also have to factor in closing costs from the final amount that you receive. There is a limit to how often you may take out VA loans.
Private Lender vs VA Debt Consolidation Loans: Similarities
Debt consolidation loans from private lenders have some similarities to VA debt consolidation loans.
Private Lender | VA Debt Consolidation Loans |
May require a hard pull on your credit | May require a hard pull on your credit |
May have lower interest rates | May have lower interest rates |
May have reduced monthly payments | May have reduced monthly payments |
Private Lender vs VA Debt Consolidation Loans: Differences
Debt consolidation loans from private lenders may also be quite different from VA debt consolidation loans.
Private Lender | VA Debt Consolidation Loans |
Qualifying standards may be higher. | Qualifying standards may be easier. |
Eligibility standards may vary by lender. | An MDCL is only available to those with VA home loans, and there is a risk of foreclosure if loan payments are not made. |
Loans do not typically come with additional financial support. | Loans may provide additional funds through a VA cash-out refinance for eligible borrowers. |
Terms vary — a longer loan term could cost you more overall. | Terms may include closing costs, but there are no monthly mortgage insurance premiums or prepayment penalties. |
Requirements for Debt Consolidation Loans for Veterans
To qualify for a VA-backed cash-out refinance loan, you must be an active military member, veteran, or surviving spouse, and you may need to provide a Certificate of Eligibility from the VA. You must own a property with equity and show that you are able to repay the loan. This may be determined by such factors as your credit history and debt-to-income ratio, which is a comparison of your monthly debt to your gross monthly income.
Alternatives for Debt Consolidation Loans for Veterans
If a debt consolidation loan is not the right fit for you, there are other options. Your military service’s financial assistance organization may be able to help with financial emergencies, such as unexpected medical bills. Nonprofits such as the American Red Cross also provide financial assistance for service members,veterans, and their families.
If you have issues with credit card debt, a certified credit counselor could help evaluate your debt and determine options for debt relief. You could also look into settling your debt by contacting your lender. A balance transfer card might also be an option for anyone who is looking to consolidate credit card debt and use an introductory 0% annual percentage rate (APR) period to tackle that debt.
The Takeaway
Consolidating debt may help military veterans get out of debt faster. By consolidating debt, you could have more affordable monthly payments with lower interest rates. However, it is important to do your research before consolidating your loans. Veterans have some additional alternatives available to them, so you may want to compare all your options.
If you are looking for a debt consolidation loan, Lantern by SoFi can help. In our online marketplace, you can get options from multiple lenders all at once to find the best option for you. It’s fast and convenient.
Compare personal loan rates and terms with Lantern.
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