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 offer debt consolidation loans.
There is also a VA cash-out mortgage for members of the military who own a home and have enough equity. If neither of these options are what you are looking for, there are other alternative debt relief solutions you can 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 off other existing debts. A personal debt consolidation loan combines existing debt and bills into one loan. The benefits may include lower interest rates, simplified payment, 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 can be used for almost anything, including medical expenses, home renovation, and debt consolidation. Most personal loans are unsecured personal loans, which means you don’t have to put up an asset as collateral for the loan.
While personal loans can be used for almost any purpose and there are different types of personal loans, if you are looking to possibly get a loan for debt consolidation, these loans let you combine existing debts in order to help pay them off. After approval for a debt consolidation loan, you may get a lump sum to pay off the other loans yourself, or the lender may pay them off for you. Then you will 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 offer 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 can 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 off 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. If you have a VA loan on your home, you may be qualified for a Military Debt Consolidation Loan (MDCL), also known as a VA consolidation loan. This is a debt consolidation loan to pay off all unsecured debts, which could include credit cards, medical bills, or payday loans. Qualifying standards for a MDCL loan are 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 will have to factor in closing costs from the final amount that you receive. There is a limit to how often you can take out VA loans.
Private Lender vs VA Debt Consolidation Loans: Similarities
Debt consolidation loans offered by private lenders have some similarities to VA debt consolidation loans. These include:
Private Lender | VA Debt Consolidation Loans |
|---|---|
There will likely be a hard pull on your credit | There will likely be 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 offered by private lenders can 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 | The Military Debt Consolidation Loan is only open to those with VA home loans. There is a risk of foreclosure if loan payments are not made |
Loans do not typically come with additional financial support | Can provide access to the Department of Defense’s Homeowners Assistance Program (HAP), which provides financial aid to members of the military |
Terms vary — a longer loan term, could cost you more overall | There are no monthly mortgage insurance premiums or prepayment penalties, but there are closing costs |
Requirements for Debt Consolidation Loans for Veterans
To qualify for a military debt consolidation loan, you must be a veteran, and you will 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 will 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 like unexpected medical bills. Nonprofits like the American Red Cross also offer financial assistance to service members and veterans.
If you have issues with credit card debt, a certified credit counselor could help evaluate your debt and determine the best 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% APR period to tackle that debt.
Recommended: Balance Transfer Credit Card: What It Is & How It Works
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 will 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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