Returning Soldiers Face Financial Challenges

The 12,000 troops returning from Iraq this month have more on their mind than the warm embrace of their loved ones. After confronting combatants on the battlefield they must prepare themselves to take on the challenge of dealing with their finances and the debt they have incurred during their service to our country.

Service members ending their active duty have always had challenges re-entering civilian life, but these difficulties have been magnified by the sluggish economy, high unemployment, and debt that may have grown during their multiple deployments and extended absence.

One of the most common mistakes made by returning troops is splurging on themselves or their families to compensate for lost time together or guilt by buying gifts for missed birthdays or taking expensive family vacations. They may also find it necessary to make expensive repairs to their homes that are long overdue. They will also encounter predatory lenders that set up shop near military bases, smaller paychecks (up to half their combat pay scale) because they are no longer receiving hazardous duty differentials, and interest rates that are higher than the 6% cap imposed on loans to active duty troops by federal law. The Servicemembers' Civil Relief Act caps interest rates at 6 percent for any loans military families incurred before they began service. That cap ends when their active duty service ends.

Another common experience is that if a service member, before their deployment, was the party responsible for paying all of the bills and making the financial decisions for the family, that role may have been delegated to their spouse during their tour of duty, even if their spouse was not qualified or prepared. Any negative results from this reversal of roles could take years to correct.

Steven Stark, Chief Operating Officer for A New Horizon Credit Counseling Services, a non-profit organization engaged in counseling debtors, including military personnel, recommends that returning service men and women refrain from making any large financial decisions immediately. “At A New Horizon, we have Certified Credit Counselors who are trained to identify the land mines that our soldiers must avoid to make a smooth transition into civilian life. The first thing we do is a full budget analysis of the client and their family income and expenses. We counsel the client on their debts and provide financial education. If appropriate, we will set up a debt management plan that will allow them to pay off all their existing debt and identify what funds they have left for new expenses and purchases”, said Stark.

Using a credit counseling service such as A New Horizon may also prove essential in avoiding the emotional and psychological strife that may follow after the veteran comes down from the high of being reunited with his or her family and then has to deal with the reality of the families’ financial challenges.

A New Horizon also warns their military clients to be wary of lenders who market their services as somehow being associated with the military. Just because their advertisements include photos of people in uniform or at a military base, and their sales people claim that they are former service members, don't assume that it’s true. If the service member encounters loans from predatory lenders, A New Horizon recommends that they consult with the Office of Servicemember Affairs set up by the new Consumer Financial Protection Bureau, a federal regulatory agency.

It is also a good idea for returning soldiers to check their credit report upon return and at least once a year thereafter. Each of the three major credit reporting agencies is required by federal law to provide a free copy of a consumer’s report each year.  It can be obtained at www.annualcreditreport.com. You might find that your credit is better than you thought and that you qualify for lower interest rate loans and credit than you are being offered. On the other hand, if the report is bad, there are services such as those found at www.getcredtrepair.org that may help you fix negative items. Out of date information and erroneous entries can severely lower your credit scores and lead to higher interest rates, more expensive insurance, denial of rental housing and even refusal to be considered for some jobs.

Finally, those military personnel looking to exit service for civilian employment can find help from the defense department which has transition programs to help service members prepare for the job market with training in interviewing skills and resume preparation.