Debt problems plague troops after military service ends

Each year, thousands of military members return from tours of duty to a home front that isn't always so rosy. They encounter a barrage of personal finance problems, some of which they inadvertently set into motion. Overspending leads to heavy liabilities; damaged credit then becomes a barrier to securing employment and housing.

Debt problems plague returning troops

The downward spiral can be fast and brutal. A 2015 Department of Veterans Affairs report projected that 53 percent of post-9/11 veterans will face joblessness. And, according to a Housing and Urban Development report, nearly 50,000 veterans were homeless on a single night in January 2014.

While the U.S. government has put preventive measures in place, from the Military Lending Act that caps high interest loans for active duty armed forces, to the Vow to Hire Heroes Act of 2011, which addresses unemployment issues among veterans, many in and out of the service continue to slip through the cracks.

Income reduction
Steve Repak, a financial planner, Army veteran and author of "Dollars & Uncommon Sense: Basic Training For Your Money," says a primary challenge of those returning from a tour of duty is a sudden and dramatic reduction of cash-flow. 

"For example, if a service member is deployed to a combat zone, their income may be tax free, they may be receiving additional pay such as for hazardous duty, special duty, family separation," says Repak. "Many times when a family is accustomed to spending that extra income, when it's reduced they find it harder to live within their means."

Once back from high-pressure combat conditions, some turn to excessive shopping to deal with boredom and depression. "It's a common coping mechanism," says Repak. "Service members with families splurge on trips to Disney, while those who are single may opt for new motorcycles or trucks."

When they leave the military for good, their economic problems often multiply.

"I went from making great money to rock bottom," says Navy veteran Robert Daniel, who lives in Fullerton, California. Even minimum wage jobs were scarce. "I couldn't take care of my family. I couldn't pay back taxes, couldn't find work, had a car repossessed, then had to buy another at 19 or 20 percent interest. I couldn't pay my rent. I was robbing Peter to pay Paul." Daniel ended up working three low-paid positions but continued to struggle.

Once you get out, you have to start over again, and at minimum wage. You have to pay for housing, medical, everything. We lost everything. We were used to better. It got bad.

-- Robert Daniel
U.S. Navy veteran

Paltry wages for those transitioning out of the military often comes as a shock. Most of the available jobs can't sustain a service member's previous lifestyle. According to the 2015 Report of the Military Compensation and Retirement Modernization Commission, monthly take-home pay for an active duty E5 (an Army Sergeant) with 10 years' experience is $3,616 -- after health care, housing and thrift-savings plan contributions. A recruit with fewer than two years of service earns about $1,500. With expenses covered, though, saving money is feasible, especially when deployed.

"Once you get out, you have to start over again, and at minimum wage. You have to pay for housing, medical, everything," says Daniel. When he experienced the combination of extremely low paying jobs with far higher expenses, disaster followed: "We lost everything. We were used to better. It got bad. My daughter made a statement that she wanted to commit suicide."

Lack of financial skills, stress
Money management mistakes -- from letting bills slip to making ends meet by borrowing -- are universal problems, says Repak, but he believes that service members are more susceptible to them than the general public. One reason, he says, is that military jobs are relatively stable when compared to the civilian world and that can create a false sense of security. The result, says Repak, is "poor spending habits, credit card problems and not properly saving for short-term emergencies or retirement."

According to Jerri Rosen, founder of the Orange County, California, Working Wardrobes/VetNet, a nonprofit providing job training and services to veterans, a lack of higher education and practical life experience is a major factor in debt accumulation. "Most go into the military right after high school, then they get all of their needs met. Everything is paid for, like housing, food and clothing. When they're deployed they're well paid, they may have a lot of discretionary money," says Rosen.

Savings deplete soon after coming home, she says. "Then, if they don't get what they need or want, they tend to depend on credit cards. They served their country, so feel they should have that new car. It seems right; deserved. But they very quickly cycle down, then hit a difficult place."


Between July 21, 2011, and Dec. 31, 2014, the Consumer Financial Protection Bureau handled 29,500 complaints submitted by service members.

  • 11,600 complaints were for debt collection matters. Of those, 41 percent were about continued attempts to collect on debts not owed.
  • 2,700 were for credit reporting problems. The vast majority (72 percent) concerned incorrect information being listed on their files.
  • 2,500 service members called about issues regarding their credit card accounts. Billing disputes, particularly fee assessments during deployment or mandatory moves, were most common at 15 percent of the complaints.

Source: CFPB "Snapshot of Complaints Received from Service Members, Veterans and Their Families," April 2015

The physical and emotional wounds many return with require care, but delays in getting their needs met creates another layer of financial stress. "They max out their cards," says Rosen. "But how can they worry about paying a credit card or a phone bill when they've just got back from Afghanistan? It doesn't seem important. So the cards don't get paid. It's complicated. Anxiety and stress play a huge part."

Debt can halt military career
To avoid unemployment and underemployment that too often leads consumer debt, redeployment might seem the logical answer. Yet it's not an option for everyone, especially as the Department of Defense is scaling back and reducing the force. The Marine Corps, for instance, is now so selective that just one in five applying for re-enlistment is approved.

Service members with credit reports indicating substantial consumer debt and collection activity are most at risk of denial. "For military personnel who want to continue serving their country, those money and credit problems are a huge stumbling block," says Jacob T. Ranish, a partner at the Washington, D.C., law firm Bigley Ranish, which represents clients with security clearance issues. "Financial problems are the No. 1 most common reason why security clearances are denied or revoked," says Ranish.

The chief concern is that individuals who are overextended are more susceptible to bribery by a foreign intelligence agency. Additionally, says Ranish, "The government views financial instability as a commentary on personal responsibility, which is a key trait for a security clearance holder."

While the defense department takes into account underlying reasons for liabilities when making security clearance decisions, it's the person's response to the situation that matters most. "The government looks at efforts to resolve the debt, and the reasonableness of the individual's conduct in light of the particular circumstances," says Ranish, explaining that anyone wanting to safeguard a military career would be wise to take swift action, such as obtaining financial counseling or arranging a payment plan.

Help exists, but not all do an about-face
The military does try to make sure service members are financially prepared so they don't come home to these problems. Before deployment, they are guided to set up auto-pay for routine costs, suspend cellphone service and call insurance companies to save on premiums. More, the Servicemember's Civil Relief Act allows for the postponement of payments on such obligations as credit card debt, mortgages and taxes.

A wide spectrum of personal finance and credit guidance for both active duty military members and veterans is also available. The Department of Defense funded program, Military OneSource, provides money management assistance, and each branch has its own support center, such as the Army Community Services, Airman and Family Readiness Center and Fleet and Family Support Center.

[Military members] will try everything before asking for help. That includes leaning on credit cards until their credit is ruined.

-- Jerri Rosen
Founder, Working Wardrobes/VetNet

Nonprofit agencies, too, have emerged to mitigate debt concerns. The American Armed Forces Mutual Aid Association (AAFMAA), for instance, is a nonprofit that provides military members and their families with a broad range of financial planning services. For those who've gotten into credit card or predatory loan debt, Michael Meese, the COO of the organization, says they may be able to repackage it all with lower rate career assistance loans so they can repay their obligations faster and at a lower cost.

Still, taking advantage of any of the services and programs can be tough for those in and out of the service. "Military members are proud," says Meese, "Asking for and receiving help is not natural." Rosen agrees: "They will try everything before asking for help. That includes leaning on credit cards until their credit is ruined. Having a bad credit rating then exacerbates the problem."

Unfortunately, for those who do reach out, success isn't always immediate or guaranteed. Some agencies, both government or charitable, lack practical assistance or the time it takes to get it is simply too long. To win the war on money problems, preparing to persevere is essential.

"I went to everything. I tried, I waited, but nothing materialized," says Daniel, who credits Working Wardrobe's VetNet program for being able to overcome his post-military service hardships. "They gave me a new suit to interview in. That made the difference." Today he works for the city in the transportation department and is finally making ends meet: "Now I'm in the process of rebuilding."

See related: New moves to protect military members from financial fraud, Military families remain easy prey for ID theft

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Updated: 11-21-2017