If you are a member of the United States military and you have found that debts are getting hard to manage, then you have probably considered taking a loan to consolidate the debts. Struggling with the burden of debt while moving often or going overseas is never an easy task. While loans might seem to ease the burden, you need to understand everything about the possibility of a loan to determine if other solutions might help you more.
Military Loans:
Loans provided to the military must follow very specific guidelines. The federal government has dictated a set limitation on interest rates to limit predatory lending practices to military men and women.
Despite the fact that the loans for military debt consolidation will not exceed the limit set by the government, in many cases the figures are still too high to get the lower interest rate required to reduce monthly payments. All loans provided to men and women in the military are capped at a maximum of 36 percent annual interest.
The problem is that when you have unsecured debts like credit cards and personal loans with an interest rate around 25 to 30 percent, taking out loans for military debt consolidation for 36 percent will not help the situation. You could end up paying more than you originally were required on monthly charges.
Consolidation Loan Basics:
When you are considering a loan for consolidation, you will find that the limitation is not the only factor to consider. Consolidation loans are not easy to obtain as a means of debt relief. Even qualifying for the loan is challenging in many situations.
While specific lenders will differ slightly in their requirements and qualification guidelines, if you have a FICO score below 700, the interest rate is usually too high to help your situation. Any FICO score below 700 will usually end up with high interest charges that might range from 20 to 30 percent or higher, depending on the specific credit history information.
The interest charges are not the only consideration when taking a consolidation loan for those unsecured debts. The loan also requires paying a fee in the beginning that will increase the overall payment over the life of the loan. Origination fees can sometimes reach as high as 5 percent of the loan, which can increase the interest charges to a higher rate.
Potential Debt Trap:
Taking out a consolidation loan for military men and women does create a potential debt trap. This occurs because you are not required to close any revolving, unsecured accounts after taking out the loan.
The result of not closing the account is that you end up spending on the accounts despite having the same level of debt. That means that ultimately, you rebuild the debts and end up facing a much harder problem. The relief is then a temporary measure that ultimately has the potential to create worse problems.
The debt trap problem commonly occurs after taking any consolidation loan, even if it was designed for military members. The problem is that you are not required to evaluate your spending habits and thus can end up struggling to solve the problem later.
Negotiation Option:
Military men and women are not required to take out a new loan to pay off the old debts. You can also opt to consolidate and settle the account with negotiation and professional help.
Negotiation prevents the debt trap from occurring by freezing all of the accounts that have revolving potential. This means that you will not be able to spend on your credit cards during the negotiation process.
The professionals in the company will also offer counseling and budgeting assistance so that you are able to identify unnecessary expenditures. This allows you the opportunity to get past the debts and start reworking your financial situation. By learning how to cut back without feeling it is a sacrifice, you are able to avoid getting into further debt in the future.
Negotiation will also result in settling the debt for a reduced amount. Settlement means that the creditor will agree to a lower principle amount and you will end up paying less for your debts. Upon finishing the payments, you no longer need to worry about the debts and you are free to start working on improving your credit rating.
By working out a solution via negotiation, you will end up facing fewer difficulties and problems. As a military member, you have other concerns like keeping the country safe and negotiation of debts can help you focus on those concerns.
Loans to consolidate debt are not the best option, even with the interest rate cap provided to military members. The loans will end up with high interest and are difficult to obtain. If you want to learn more about negotiating debts, fill out the form now or call us today.