Debt can be overwhelming, especially during the repayment process, so much so it's often very easy to forget other monthly or annual payments. Getting out of debt can be incredibly hard, even seemingly impossible at times. Though the road to recovery may be long, it is possible to get back on your feet after financial difficulty.
Some heavily indebted individuals have spent imprudently while others are victims of circumstances beyond their control like unemployment, medical emergencies or unforeseen changes in a family situation. Study reveals that members of the military accrue debt at alarming rates when compared to civilians. This debt can endanger service members’ financial lives (and their jobs) if left untouched.
Here are five reasons members of the military tend to fall into debt.
1) Pay is steady but small
“Service members may find themselves in debt for a number of reasons,” said Gerri Detweiler, Director of Consumer Education at Credit.com. “For many, the pay may be steady, but it’s not large, and that means they have to stretch their paychecks quite a bit – especially if they are helping to support a family.”
When military members are forced to squeeze every last dollar out of their paychecks, they might not be able to save enough money for emergencies at home. So if there is a family emergency, they might have to go into debt, which can easily become a downward spiral if it’s not carefully monitored.
2) Frequent moves prove to be expensive
Another reason for debt in the military is needing to move locations often. Frequent moves can add additional expenses and those moves can make it harder for a spouse to hold and advance in a good paying job. As a result, they have to pay mortgages on both their old and new homes in order to maintain good credit, which places an added burden on their financial lives. Debt can start to pile up despite their efforts.
3) Spouse forgets to make a payment during deployment
Deployment makes it difficult to stay out of debt as well. If a service member leaves a spouse at home, he or she will automatically receive all the financial responsibilities while the service member is deployed. If communication fails for some reason, the spouse at home might forget to pay a seemingly innocuous bill. But that missed payment can create larger problems if not taken care of. Because most of the financial pressure is put on the spouse at home, missed payments can lead to more debt.
4) More susceptible to the credit industry
Because of their steady, guaranteed paychecks, military members can get credit more easily and are more likely to be targeted by creditors than civilians. “Additionally, those (military) that do carry credit card debt have higher balances than their civilian counterparts,” said Karen Carlson, Director of Education at InCharge Debt Solutions. “Carrying debt, however, limits a service member’s ability to maximize other military benefits, like the Thrift savings program.”
5) Fear of jeopardizing security clearance
The underlying reason service members stay in debt once they accrue it is fear of losing their security clearance if their superiors find out about their debt. “Unfortunately, members of the military may be afraid to seek out help,” said Detweiler. “I’ve heard from service members who are deeply underwater on their homes, for example, but are afraid to get help for fear of jeopardizing their security clearance.”
So if they don’t acknowledge their debt and seek help for fear of losing their clearance and job, the debt will only continue to increase.
But nonprofit companies such as VeteransPlus and Military Debt Management Agency work to make it possible for military members to put their debt behind them. “A successful military career can lead to a lifetime of financial security if you exercise some of the discipline gained from basic training in your personal finances,” said Carlson. “We encourage service members to get out of debt and stay out of debt, with the help of nonprofit credit counseling.
The two ways to debt relief for Veterans can either be through self guides or professional help.
Self Guide – This entails creating and Sticking to budget
Financial Planning Software
Commercial software, such as Quicken Intuit, can be a very useful tool in budget planning. Sticking to a budget has never been easier, at least in theory. Budget software can track your income and expenses and does so while placing a premium on ease of use and easy to understand breakdowns of where your money is going.
There are also free spreadsheets you can find on the internet that can help you track your money. While they lack the sophistication of commercial software programs, they can be a useful starting point for those who are just beginning to track their spending.
The Old Fashioned Way
While computer software can be enormously useful to enable sticking to a budget, it's not absolutely necessary, and in fact many people prefer to do a budget with pencil and paper so that they can see the entire picture right in front of them. If you're one of these people, you'll need to do more work in keeping your records organized, but if you do so, you'll be fine once you get going.
This sounds easy, but getting over the mental hurdle of starting a budget and the initial energy it takes to track your money is the hardest part. Once you accept that there are absolutely no disadvantages to creating a budget and doing so will make your financial life easier to manage, maintaining your records becomes second nature.
Total Your Income
Take stock of every source of income that you have. If you have a regular paycheck, tally up your monthly take home pay. If you are self employed, be sure to include any income you generate as well as any outside sources of income.
Gather Your Records
After you've taken stock of your income, you'll have to spend a significant amount of time and energy into tracking your expenses. You should begin by tracking regular expenses such as mortgage payments, student loans, utilities, car payments, insurance, child support, and any other obligation that you pay each month. These are considered fixed payments, and most likely will not change much over the long term.
Making A Budget
After you've tallied up your total income and total expenses (this process will take you at least one month), you will immediately see whether your expenses overtake your income and you can begin to make decisions on where to trim the fat.
Sticking to a Budget
Making your budget is time consuming and you may feel as though you're done, but you still have to remain faithful to your budget or your effort will be for nothing. Think of your budget like a diet. You want to stay on it, but if you splurge on one day or in one area it's alright, you'll just have to make up for it in another area.
Professional debt relief solutions include:
Debt Settlement – Also known as debt negotiation or debt resolution, debt settlement involves you or a debt settlement company negotiating lump-sum settlements with your creditors. The object is to decrease the principal you own while also eventually retiring the debt.
Debt Consolidation – Debt consolidation means taking out a loan, which you use to consolidate and pay off all your other debts. The object of debt consolidation is to reduce interest rates and combine all of your debts into one manageable, monthly payment.Finding a Dependable Company. It takes time researching a dependable and experienced debt consolidation company. Look for companies with more than five years of experience.
Debt Management Plan – Unsecured debts such as credit card bills, medical bills, student loans, department store cards and unsecured lines of credit can be handled through a debt management program (DMP). The object is to reduce your monthly payments by getting a reprieve from interest rates, late fees or penalties from your creditors while promising to pay back the full principal over time.
Credit Counseling – Another system of debt management is credit counseling. You work with a credit counseling agency that reviews your budget and helps you evaluate all of your debt relief alternatives.
Many credit counseling services are nonprofit organizations and may provide counseling sessions at no cost. However, some organizations are for-profit companies and do impose fees.
Bankruptcy – These services come with a price because they are complicated and involve plenty of paperwork and terminology most of us are unfamiliar with in our daily lives. Many debtors turn to financial professionals for help with debt — from calling lenders for lower rates, refinancing a home or simply creating a strict budget and sticking to it.