Question: As an Army wheeled vehicle mechanic (91B), I thought I understood how to repair anything. But now that I’ve been a civilian for a couple of years, I realize I don’t know how to fix my credit. I’ve been exploring options for debt relief but find myself having trouble distinguishing between credit counseling, credit repair, credit monitoring, debt cancellation, debt forgiveness, debt settlement, and debt management programs. Help!
– Jonathan, Colorado
Debt.com Founder, Howard Dvorkin CPA answers…
Before I explain those confusing terms in plain English, Jonathan, I’ll remind you: As a Veteran, you’re not alone. As someone who has offered financial counseling to Veterans, I can tell you that many resources are available for those who served our nation. One of my favorites is Army OneSource.
Now, let’s answer your questions as succinctly as possible…
Debt relief programs for veterans
The government offers numerous programs to manage, repay and even forgive student loans and other debt if you’re a veteran. One option is the total discharge of your student loans if you’re a disabled Veteran whose disability is connected to your service. This program is called Veterans Total and Permanent Disability Discharge.
Military debt consolidation for VA homeowners
If you’ve got a VA home loan, you’re eligible for a Military Debt Consolidation Loan (MDCL). You borrow against the equity in your home to generate funds to pay off your other debts. This loan is partially guaranteed by the VA, which allows you to access to better loans and terms than the typical consolidation loan.
Credit counseling is a process you can use when you’re having problems with credit card debt. A certified credit counselor evaluates your debts to help you identify the best options for debt relief for your situation. This might be debt consolidation, debt management, or debt settlement.
Is your credit rating holding you back? Find out how to fix it.
Credit monitoring is a service you use to track changes in your credit. These tools monitor your credit reports for changes or updates. Anytime something happens, you’ll be notified. It can be useful if you’ve faced any issues with identity theft. Use can also this service to check your credit score track your progress as you work to fix your credit.
With debt consolidation, you roll multiple debts into one lower monthly payment at the lowest interest rate possible. There are really several different ways to consolidate. The best one usually depends on your credit score. With a high credit score, you can use a consolidation loan or balance transfer.
If you have bad credit, you can consolidate through a credit counseling agency using a debt management program. Many agencies reduce or waive fees for Service Members and Veterans, making these programs even more affordable.
Debt cancellation is a misnomer when it comes to credit card debt. No creditor will just cancel a credit card debt that you incurred without credit damage or penalty. You can have the remaining payments on a debt canceled if you settle for less than you owe or file bankruptcy. However, both options will damage your credit score.
Same thing here; your creditors won’t just “forgive” credit card debt once it’s incurred. They may discharge your remaining balances if you settle or declare bankruptcy, but that’s not forgiveness because you incur credit damage. Debt forgiveness does, however, apply to student loans. As a Veteran, there are several programs you may be able to use for student loan forgiveness.
Under debt settlement, you pay your creditors a certain percentage of what you owe. Then they agree to discharge the remaining balances. You pay less than the full amount owed to clear your debt. However, you incur a seven-year credit penalty on every debt that’s settled. Using settlement is usually a last-ditch effort to avoid bankruptcy.
Credit repair is taking steps to correct mistakes on your credit report. These reports, which are maintained by each of the three credit bureaus, sometimes contain errors that can drag down your credit score. With credit repair, you review your reports to identify mistakes. Then you dispute them with the credit bureaus to have the incorrect information removed.
The bottom line on options for debt relief
As I’ve always said, spending money is simple, but debt is complicated. Depending on the types of debt you have and how those debts have affected your credit, you may need more than one of these solutions. I’d recommend mentioning that you’re a Veteran to any service provider that you talk to. They may have discounts for Service Members and Veterans, which can be a big help as you work to get out of debt. Good luck, Jonathan. If you can handle military service, you can handle this.