Soaring prices and rising interest rates have left tens of millions of Americans struggling with debt, particularly high-interest credit card debt. Debt consolidation can be an effective solution, and there are unique options available for veterans.
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6 best debt consolidation loans for service members and Veterans
Medical bills and other unsecured debts can also be consolidated. The most effective way to consolidate debt is to take out a new loan, ideally with a lower interest rate. Active duty service members and veterans have some unique loan opportunities. If you’ve ever been in the armed forces and need a debt consolidation loan, these options are a great place to start your search.
DebtHammer
Our #1 pick is Debthammer. DebtHammer offers a wide variety of options to help veterans and others get out of debt. The first step is filling out a simple form, and from there a certified debt specialist will help you instantly apply to over 30 loans, and also present options you may not realize exist.
To find the best options, we recommend the calculator below.
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DebtHammer.org is an organization that has helped thousands of people smash their debt and get back on the road to financial freedom. They help you compare 20+ loan options, plus other affordable ways to get rid of your debt – both short term and long term.
Please schedule an appointment so one of our specialists can walk you through your various solutions.
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| Loan amounts | $5,500 to $50,000 |
| Repayment terms | 1 to 4 years |
| Interest rates | Varies |
| Debt Types | Credit Card, Medical, and Most Unsecured Debts |
| Minimum credit score | None |
| Eligibility requirements | Must live in an eligible state, and have over $7,500 in debt |
DebtHammer is focused on helping people get out of credit card and other secured types of debt. It costs nothing to check your eligibility, and does not affect your credit score. Click here to learn more.
USAA
USAA is a bank that offers a wide range of financial services to active-duty military personnel, Veterans, and their families. If you are a Veteran with an honorable discharge, you are eligible for membership.
USAA offers personal loans that can be used for debt consolidation.
| Loan amounts | $2,500 to $100,000 |
| Repayment terms | 1 to 7 years, larger amounts get longer terms |
| Interest rates | Depending on your credit score and other factors, a maximum of 18.51% |
| Fees | Late payment fee of 5% of the amount due |
| Minimum credit score | None |
| Eligibility requirements | Must be a USAA member. Loans are available in all states |
These are not dedicated debt consolidation loans, and USAA will not pay your creditors directly. You will have to pay your creditors from the loan proceeds.
USAA is noted for fast funding. Funds are available within one business day of approval if you select funding by ACH transfer.
Navy Federal Credit Union
Navy Federal is a credit union that has served military and Veteran families since 1933. It provides numerous financial services, including checking and savings accounts, credit cards, loans, and financial education.
Navy Federal’s personal loans are a good fit for debt consolidation, and the credit union will pay your creditors directly.
| Loan amounts | $250 to $50,000 |
| Repayment terms | Up to 60 months |
| Interest rates | 36 months or less: 7.49% to 18%. 37 to 60 months: 14.79% to 18%. |
| Fees | $29 fee for late or returned payments |
| Minimum credit score | Not disclosed |
| Eligibility requirements | Must be a Navy Federal member |
Navy Federal loans are noted for fast funding, with funds often released on the same business day as their approval.
Pentagon Federal Credit Union
PenFed is an established credit union that once served only military members and their families. It’s now open to anyone.
PenFed personal loans have no origination or prepayment fees, and you can prequalify without a hard credit check. Non-members can prequalify, but you’ll need to be a member to apply.
These personal loans are a good fit for debt consolidation, but they are currently only available to borrowers with good credit. Joint and co-signed loans are available. Loan funding is within 48 hours of approval.
| Loan amounts | $600 to $50,000 |
| Repayment terms | Up to 66 months |
| Interest rates | 7.74% to 17.99% |
| Fees | $29 fee for late payments, $25 for insufficient funds |
| Minimum credit score | 700 |
| Eligibility requirements | Must be a member |
PenFed only reports to Experian, so the impact of your loan payments on your credit score will be limited.
Security Service Federal Credit Union
Security Service Federal Credit Union is a military-focused credit union with physical branches in Texas, Colorado, and Utah. Loans are only available in these states but provide a strong debt consolidation option for residents of the area.
The credit union was once exclusively for military service members and their families but now offers over 2600 avenues to membership.
Security Service Federal Credit Union offers dedicated debt consolidation loans: they will pay off your creditors and close the accounts. All you have to do is make your loan payments.
| Loan amounts | Not disclosed |
| Repayment terms | Up to 60 months |
| Interest rates | 8.24% to 17.95%, may vary with your location |
| Fees | Not disclosed |
| Minimum credit score | Not disclosed |
| Eligibility requirements | Must be a member |
The Security Service Federal Credit Union website has limited information, but if you’re a resident of the states that it serves, it’s worth inquiring about the details.
Service Credit Union
Service Credit Union is based in New Hampshire and primarily serves current and former members of the military. The credit union is open to members worldwide: there is no fixed area of coverage.
Personal loans are available at competitive rates and are suitable for debt consolidation.
| Loan amounts | Up to $50,000 |
| Repayment terms | 24 to 60 months |
| Interest rates | As Low as 8.99% |
| Fees | Not disclosed |
| Minimum credit score | Not disclosed |
| Eligibility requirements | Must be a member |
The Service Credit Union website provides few details about the loans, but if you’re shopping for a loan, they could be worth a closer look!
Other loan options
These loans aren’t targeted to active-duty service members or veterans, but may offer terms that are comparable to the lenders listed above.
- Upgrade: Upgrade offers personal loans with repayment terms ranging from 24 to 84 months, depending on the loan size. Interest rates range from 8.49% to 35.97%. Learn more about loans from Upgrade.
- Upstart: Upstart personal loans have repayment terms of either 24 or 36 months. APRs range from 6.5% to 35.99%. Learn more about Upstart loans.
- SoFi: Sofi offers loans with repayment terms ranging from 24 to 72 months. APRs range from 7.99% to 23.43%.
READ MORE: Here are some of the best debt consolidation loan options
Government programs
The Veteran’s Administration offers two loan programs that can help Veterans with debt problems, and there are laws that protect service members from predatory lending practices.
VA Loans/Military Debt Consolidation Loans
The VA offers a cash-out refinance loan, often referred to as a Military Debt Consolidation Loan or MDCL. Like VA home loans, these loans are made by private lenders but backed by the US government.
There are several requirements.
- You must qualify for the VA’s Certificate of Home Loan Eligibility.
- The VA and the lender will have standards for your credit score, income, and level of existing debt.
- You must live in the home.
A cash-out refinance is a secured loan that usually has a low interest rate and relatively easy approval. Be careful: if you can’t make the payments, you could lose your home.
You must own a home and have equity in it to use this program. There will be closing costs.
Interest Rate Reduction Refinance Loans
The Interest Rate Reduction Refinance Loan, or IRRRL, is often called a streamline refinance. It is a VA-backed home refinance loan. It does not consolidate debt, but it can reduce your monthly mortgage payment and leave more money available to pay other debts.
To use this program, you must currently have a VA-backed home loan and use the IRRRL to refinance that loan. You must live in the home or have lived in it in the past.
If you own a home and have equity in it, these loans may help reduce your mortgage payment. As with all refinance loans, there will be closing costs.
Laws that protect active-duty military personnel
Two laws offer military personnel special protections from predatory lenders.
It’s important to note, though, that these protections are only available to active-duty military. Veterans are not eligible.
- The Servicemembers Civil Relief Act (SCRA) caps interest rates, charges, and other fees at 6%. This law only applies to debts incurred before the start of active duty. You must notify your lenders that you are in active military service. The SCRA also protects service members from default judgments, foreclosures, eviction, and repossession in some cases.
To earn more about the SCRA, check out this video:
- The Military Lending Act limits interest rates and fees to 36%. It also applies to spouses and dependents. The law only applies to unsecured loans, and in 2015 the Department of Defense expanded it to include payday loans, title loans and certain student loans. Mortgages, car loans, and financing secured by property are not covered.
The Consumer Financial Protection Bureau (CFPB) provides more information on these laws.
Other debt consolidation options
If you’re not eligible for these government programs, there are other debt consolidation methods. These are not specific to Veterans, but some lenders may offer special deals to veterans.
- Personal loans: A personal loan is one of the most common ways to consolidate debt. Some lenders offer preferential terms for veterans, but you’ll still need at least good credit to qualify. Some personal loans are explicitly marketed as debt consolidation loans, but any personal loan can be used for debt consolidation.
- Balance transfer credit cards: These cards offer zero-interest promotional periods. You can transfer the balances you want to consolidate to the balance transfer card and pay them off before the promotion expires. If you don’t pay the balance off in time, you’ll be right back to paying high interest, and many cards will cancel the promotion if you make even one late payment. If the balances you transfer add up to a large percentage of your credit limit, your credit could suffer. Most balance transfer credit cards require at least a good credit score.
- Cash-out refinance: A cash-out refinance involves taking out a refinancing loan for more than the balance left on your original mortgage. Homeowners pay off their old mortgages and use the difference to pay off their debts. You can’t borrow more than the equity you have in your home, usually minus the 20% down payments, so this is an option for people who have built up substantial equity. These loans have very low interest rates, but if you can’t pay, you could lose your home.
- Home equity loan or line of credit (HELOC): Many civilian lenders offer these loans and credit lines, which are backed by the equity you hold in your home. Approval is generally easy, even with compromised credit, and interest rates are usually low. Use these loans with caution. If you can’t pay, you could lose your home.
READ MORE: Debt consolidation loans for married couples
Debt consolidation has some risks
Debt consolidation has risks, and you should consider them before adopting a debt consolidation plan.
- You need good credit: Many debt consolidation methods, like debt consolidation loans and balance transfer cards, require a solid credit history. If you have bad credit, you won’t get attractive deals, and you may not be able to use these methods at all. Before you apply for a new loan, request copies of your credit reports from the three major credit bureaus and make sure there are no errors dragging down your credit score.
- Secured loans could put your belongings at risk: Some methods that don’t require good credit, like home equity loans or a cash-out refinance, use secured debt to consolidate unsecured debt. You’ll reduce your interest rate, but if you can’t pay, you could lose your home.
- You may have to pay closing costs: Home equity loans and cash-out refinances involve closing costs and origination fees. You may not get as much from the loan as you expected.
- You have to stop spending: Debt consolidation only works if you stop taking on new debt (especially credit card debt) until the consolidated debts are paid off. If you can’t do that, you may end up in even worse shape.
It’s important to remember that debt consolidation is not a magic trick that makes debts go away. You may get a better interest rate, better terms, and more convenient payments, but the debts still have to be paid.
Other debt management programs
If you have serious debt problems and consolidation doesn’t look right for you, there are other debt relief options available.
- Debt management plans are offered by credit counseling agencies. These are primarily nonprofit organizations. You’ll have a free session with a credit counselor to review your options, and the counselor may recommend a debt management plan. A debt management plan is a form of debt consolidation. You will make a single monthly payment to the counseling agency, and they will pay your creditors. They will also negotiate for lower rates and better terms. There are fees for these plans, but most participants find that the monthly savings on debt payments are higher than the fees. You will probably have to close credit cards and other credit accounts. Debt management plans can take years to complete, and many participants drop out, but they can be a very effective way to get out of debt without destroying your credit. Be sure to select a reputable credit counseling agency.
- Debt settlement involves negotiating with creditors to forgive a portion of your debt, lowering the total amount you will pay. In most cases, you will need to pay the settled amount in a single lump sum. You can negotiate yourself or hire a debt settlement company to do it for you. A debt settlement company will charge you a percentage of the amount that’s forgiven. Read more about how debt settlement works.
- Bankruptcy is a final option. If you have more debt than you can possibly pay, bankruptcy can wipe the slate clean and give you a fresh start. The process is complicated, and it will do serious damage to your credit score, but most people considering bankruptcy already have very poor credit scores.
There are several types of bankruptcies, but almost all personal bankruptcies in the U.S. are Chapter 7 or Chapter 13. You’ll have to decide which one you qualify for. You can consult a bankruptcy attorney — most offer a free initial consultation to review your situation and recommend a course of action — or use Upsolve, an app that can walk you through a simple Chapter 7 bankruptcy without a lawyer.
READ MORE: 5 easy steps to pay off credit card debt over $10,000
The bottom line
Debt consolidation can simplify your monthly payments, reduce your interest rate, or reduce your monthly payment. It won’t leave you debt-free — the debts are still there and you still have to pay them — but consolidation to ease your financial difficulties.
Military families have some unique loan opportunities that aren’t available to civilians. It’s worth taking some time to research these, though, because you may be able to find a better deal through traditional financial institutions or online lenders. The key is to find the lowest interest rate
Understanding the debt consolidation process and the special options available to Veterans can help you get the debt consolidation loan that best suits your personal financial situation.
FAQs
If your debt consolidation loan is a cash-out refinance through the Military Debt Consolidation Loan program, the VA will offer temporary deferment or forbearance options. You will still be expected to pay the loan eventually. If your loan is through a private lender, contact the lender and ask about restructuring options. If you cannot pay the loan, you may have to resort to debt settlement or bankruptcy.
The U.S. government will not pay or forgive your debts, even if you’re a veteran. If you have a VA-backed home loan, you may be able to take advantage of forbearance or deferment, but if you can’t pay the loan, it will eventually be foreclosed. If you owe money to private lenders and you can’t afford to pay, you have the same options as non-veterans, mainly debt consolidation, debt management plans, debt settlement, and bankruptcy.
Many types of debt are eligible for consolidation, including federal student loan debt. You may end up paying more in the long run, though, and you could miss out on student loan forgiveness programs, so consolidation may not be your best option in this case.
What is an APR and how is it different from an interest rate?
APR stands for “annual percentage rate.” This refers to the yearly cost of the loan including the principal balance and other fees (ex. origination fee). An interest rate is a percentage that indicates how much the lender charges for the loan. Since APRs consider all fees, it will almost always be higher than the interest rate.
