Active Duty? Learn How to Lower Debt Costs
Content provided courtesy of USAA.
Military service need not come with heavy financial or legal burdens.
The Servicemembers Civil Relief Act offers military professionals a variety of protections. Taking full advantage of your SCRA rights begins with knowing what they are and how they work.
If you enter active duty and have an existing credit card, auto loan, mortgage or other debt, you may be entitled to a lower interest rate. The SCRA prohibits lenders from charging more than 6% interest on debts incurred prior to active service. The coverage for credit accounts is the period of active duty. For home loans, the coverage is the same period, plus one year.
"Credit card accounts alone could result in savings of hundreds of dollars in interest," says JJ Montanaro, a CERTIFIED FINANCIAL PLANNER™ with USAA. For example, reducing an eligible 14.5% interest rate card with a balance of $5,000 to 6% could save you almost $500 during a 15-month period.
To take advantage of this rate cap, the SCRA requires you to:
- Notify your lenders; and
- Send them a copy of your military orders.
There are some exceptions, however. Service members also should understand that SCRA rules don't apply to debts incurred after entering active duty.
It's worth noting that under SCRA, if you're assigned overseas or to an area where your cellphone provider doesn't have coverage, you may cancel the contract with no penalties and fees.
You also may be entitled to life insurance protection benefits under SCRA. To learn more about eligibility requirements and to access the application for the Protection of Commercial Life Insurance Policy (VA form 29-380), contact the U.S. Department of Veterans Affairs office.
Other SCRA protections cover:
- Terminating leases
- Tax relief
- Credit protection
- Legal proceedings