Debt Consolidation for Veterans: Your Options in 2023

Get out of debt faster with specialized debt relief option for veterans. Here's everything you need to know.
Updated April 3, 2023
Debt Consolidation for Veterans

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Struggling to get out of debt is a big task, whether you’re a military veteran or not. But unlike some civilians, there’s a high chance that military service members have had to deal with unavoidable factors such as several relocations to areas you’re unfamiliar with and unemployment among a partner or spouse during active duty.

These factors and others, such as living outside of your means, can cause money issues and make you more vulnerable to falling into debt or resorting to things like payday loans. In fact, a study of veterans’ finances found that military veterans are more likely than other consumers to report problems managing their credit.

Given that there are 22 million U.S. veterans, representing 8% of the U.S. population, this is a huge red flag. But that doesn’t mean you'll never figure out how to pay off debt. Tools and strategies such as debt consolidation can be a good option to consider depending on your situation.

In this article

What exactly is debt consolidation?

If you have heard the term “debt consolidation” get thrown around but aren’t sure what it is or how it works, let’s hit the pause button for a moment. Learning about what you’re getting yourself into before you dive in is important, especially when it comes to finances.

Debt consolidation, also sometimes referred to as consolidating credit card debt, is a method used to simplify paying back debt owed to creditors, ideally at a lower interest rate, so you don’t have to pay back quite as much.

The main strategy behind this method is combining your loans into one, taking out a loan amount that can cover your total existing debt, and leaving you with just one loan to repay and manage.

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How It Works

This practice most commonly applies to paying off unsecured debt, such as high-interest credit card bills, medical bills, and personal loans. It does not commonly apply to paying down secured debt, tied to assets such as mortgages and auto loans, but there are a few options available.

For example, if you have five credit cards carrying high balances and aren’t sure how you will pay off, consolidating them would mean combining all your monthly payments into one loan and making a single payment each month toward that new loan. In this way, you'll still repay all your debts, but the repayment process should be simpler and possibly less expensive. That's because, depending on your creditworthiness, you may also be able to secure a lower interest rate when rolling balances into one, saving money on interest you may have otherwise had to pay.

In a nutshell, consolidating debt into a single loan could reduce your interest rates, decrease your overall debt, and alleviate a lot of the stress that comes with staying on top of multiple loans.

How debt consolidation for veterans is different

There’s a lot of crossover between debt consolidation options for veterans and others, but as a veteran of the armed forces, you have special access to programs, terms, and organizations that could further aid in the process of helping you pay down your debt.

The key is understanding your options – what you can benefit from now versus what you may have been able to benefit from when you were active duty military.

For example, while active duty service members benefit from the SCRA (Servicemembers Civil Relief Act) and the Military Lending Act with certain protections against interest rates during their term of duty, those acts don’t extend the same protections when you become a veteran.

This example isn’t meant to further frustrate you but rather to illustrate that things can change over time when you transition to post-duty life, so it’s important to understand what’s available to you.

Government debt consolidation options for veterans

1. VA Loans

VA Loans are specialized home loans only available to veterans. While they’re backed by the Federal Government, these loans are provided by private lenders, such as banks and mortgage companies. The VA guarantees a portion of the loan, which enables the lender to provide you with more favorable terms that you might not have otherwise received.

On its own, simply having this loan does nothing to help you directly with consolidation, but it does make you eligible for IRRRL and MDCL loans (see below).

2. Interest Rate Reduction Refinance Loan (IRRRL)

Also called the Streamline Refinance Loan, the IRRRL is another offering from the Department of Veterans Affairs that could help you obtain a lower interest rate by refinancing an existing VA loan.

It can be done with no money out of pocket, meaning all costs may be included in the new loan or by making the interest rate on the new loan high enough to cover the costs of the lender – an important detail to consider when learning about your options.

3. Military Debt Consolidation Loans (MDCL)

If you went through the VA to get a mortgage with a VA home loan, you are eligible to use a Military Debt Consolidation Loan (MDCL). This loan acts as an intermediary borrower against the equity built up in your home, so it’s like a home equity loan specifically meant for veterans.

4. Debt Consolidation Loans With Specialized Terms

If you’re not a homeowner or prefer not to borrow against the equity built up in your home, you still have specialized financial assistance options available for debt relief and credit counseling.

Partnering with an agency such as VA Financial could help you receive up to $40,000 to repay unsecured debt often at a lower interest rate. Active and retired service members are eligible to apply, along with military family members.

Other agencies that offer consolidation to all consumers sometimes have special discounts or waivers for members of the military. Consolidated Credit, for example, waives all program setup fees for veterans and their families.

5. Leave No Veteran Behind (LNVB)

This national 501(c)3 non-profit organization provides educational employment services to veterans facing economic hardship. One arm of LNVB is providing retroactive scholarships that pay off the student loans of veterans who have completed some form of higher education but weren’t fully covered by veteran educational programs such as the GI Bill.

The organization also provides support with helping veterans find employment opportunities and form leadership skills.

Non-government options for debt consolidation

While the government is able to provide some financial protections for military personnel, that doesn't mean that a federally backed program will always be the best financial option for you. 

The smartest way to consolidate debt depends on your unique financial situation. It could include using one of the best personal loans or one of the best balance transfer cards. Both strategies are similar and involve using a credit product to consolidate the money you owe into one new debt to help make it easier for you to pay off. But you have to weigh the pros and cons of each. 

A personal loan might make more sense for paying off large amounts of debt over a long period. And a balance transfer could make sense if you’re planning to pay off your debt in two years or fewer. You also need to make sure that the interest rate you’re getting on the new debt consolidation loan is lower than the interest you were paying before, or else the switch likely wouldn’t be worth it. Make sure you also keep an eye out for things like origination fees on a personal loan.

Depending on how much of a struggle you're experiencing, you may want to investigate a debt management program or debt settlement service. You may also want to look into using the services of one of the best credit repair companies. It's likely that if you've had financial trouble that your credit report has taken some hits. A credit repair company might be able to help you raise your credit score and also learn how to better manage your money.

Finally don't overlook the services that may be available to you from a nonprofit credit counseling agency, in many cases for free. The best credit counseling companies offer a wide range of services and are experienced at helping people through the most difficult of financial situations.


Are there personal loans for veterans?

Many financial institutions issue personal loans to veterans. Interest rates on these loans will vary depending on your credit score, but lenders can’t legally charge more than 36% under the Military Lending Act. If you qualify for a personal loan, you can use the money for almost any reason, from consolidating credit card debt to making needed repairs on your home or vehicle.

Does Navy Federal do debt consolidation loans?

Yes. Navy Federal Credit Union offers personal debt consolidation. You can use their loan calculator to find out if debt consolidation is the right choice for your financial situation.

Can I get a loan against my VA disability?

While the VA doesn’t issue loans to help you access your disability pay early, private lenders do offer loans to disabled veterans, and many will consider your disability benefits as income for the purpose of qualification. Navy Federal Credit Union and USAA are both good choices.

What is a VA cash out loan?

A VA Cash-Out Refinance Loan allows homeowners to borrow against their home equity. This loan can be used to consolidate debt, fund education, or pay for home repairs or improvements.

How to leave debt behind for good

The bottom line is that regaining control of your personal finances and becoming debt-free is possible. And, it’s good to keep in mind that debt consolidation is just one strategy among a handful of others for overcoming financial difficulties.

With the help of specialized debt relief programs for veterans, you can pay off your loans, rebuild your credit (and perhaps get one of the best credit cards for the military), and leave debt behind for good.

Understanding and weighing your options before making a choice can help improve your chances of financial success in the future, and set you up on a good foundation going forward. 

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Author Details

Laura Bostwick Laura writes about managing money, entrepreneurship, getting out of debt, and using credit cards responsibly.

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