Consolidation Tips for Service Members

8 tips to help you manage debt effectively, especially when you’re deployed.

The last thing you need to be worrying about while you’re deployed on active duty to a combat zone is what’s happening with your debts back home. But with the right strategy that uses the Servicemembers Civil Relief Act to your advantage, you can minimize the monthly payments, cap interest rates and even avoid fees so your debt can be managed effectively while you focus on the mission at hand.

The information below can help you understand what steps you need to take to consolidate effectively and what you can do to make debt management easier during active duty. If you have questions or would like help finding the right option for consolidation in your situation, call us at or complete an online application to request a confidential debt and budget analysis from a certified credit counselor at no charge.

Tip No. 1: Consolidate before you deploy

Trying to make arrangements after you’ve already deployed will only make it more challenging at a time when you don’t need the distractions. So you should consolidate your debt prior to deployment as you get your finances in order so they can be managed easily while you focus on the mission.

Keep in mind that the right debt consolidation option typically reduces your monthly payment amount, as well as simplifying your payment schedule to just one bill for all debts you consolidated. So consolidating makes it easier to manage payments AND makes your debts more affordable so you’re less likely to fall behind.

Tip No. 2: Consider a debt management program

There are several different ways to consolidate, but the best for service members on active duty or a reservist anticipating Extended Active Duty (EAD) are either to use a personal debt consolidation loan or a debt management program.

The consolidation loan is a good option for consolidating a limited amount of debt from multiple sources if you have a good credit score. If you have too much debt or you don’t have good credit, a loan can be problematic. In this case, consider a debt management program (DMP) through a credit counseling agency. It’s an assisted form of consolidation that can reduce your total monthly payments by 30 to 50 percent regardless of your credit score.

Tip No. 2:  Make sure your interest rates are reduced

The Servicemembers Civil Relief Act (SCRA) states that interest rates for deployed active duty soldiers are capped at 6 percent. However, this 6 percent cap is only automatic on federal student loans. For all other debts, including credit cards and debt consolidation loans, you must request that your rates are reduced and may need to provide an SCRA certificate as proof of your deployment.

Also keep in mind that 6 percent is the maximum. You should talk to each creditor or lender to see if they are willing to reduce your rates further or eliminate them entirely. Doing this for consolidated debt is easier, since you only have to make one call to cover all your debt rather than individual calls for each debt owed.

Tip No. 3: Talk to your credit counselor if you’re on a DMP

The interest rate cap mentioned above would also apply to the debts included in a debt management program. In most cases, your interest rates should already be reduced or eliminated once you enroll – interest rates are typically reduced to 10 percent or less even for civilians who use this to consolidate. Credit counselors negotiate with your creditors at the time of your enrollment.

Still, call your credit counselor if you’re enrolled in the program to make sure your rates are all reduced to below 6 percent. If not, the credit counselor should be able to get you an additional deduction thanks to the SCRA. In addition, program fees may also be waived for a deployed service member, so call to see what the agency can arrange for your program before you deploy.

Tip No. 4: Set payments in your 6 discretionary allotments

Any active duty service member as well as reservists on Extended Active Duty (EAD) can set up pay allotments, where a set amount of money is automatically taken from your pay and distributed to a designated person or business. You are allowed up to 6 discretionary pay allotments at a time.

Officers and enlisted members can authorize payment for personal loans, which would include a debt consolidation loan. By consolidating your debt, you make it easier to manage during deployment because you can set one discretionary allotment to cover the loan payments on the consolidated debt.

Tip No. 5: Remember to set up special Power of Attorney

If you have someone you’re designating as your financial manager while you’re away, such as a spouse or parent, you need to establish Power of Attorney. However, it’s important to note that if you want that person to have the ability to make changes to allotments this requires special Power of Attorney to be set up.

Make sure if you’re setting up allotments that you obtain the appropriate Power of Attorney that will allow the person you designate to adjust pay allotments as needed.

Tip No. 6: Put credit cards on freeze while you’re deployed

Generating credit card debt while you’re deployed only increases the obligations you have to worry about. So once you simplify your debts through consolidation before you deploy, don’t then complicate things by taking on new high interest rate credit card debt.

This includes credit card debt from your spouse or designated Power of Attorney or any authorized user on your credit cards. Whoever is managing your finances should use available cash and avoid taking on debt you’ll have to worry about later.

Tip No. 7: Take advantage of an SDP

If you’re deployed to a combat zone where you receive Hostile Fire Pay / Imminent Danger Pay (HFP/IDP) you’re eligible for the Savings Deposit Program (SDP). This is a special savings account that earns ten percent interest, which makes it a very strong investment tool.

Since an SDP grows at 10 percent and the interest rates on your debts are capped at 6 percent, it’s in your best interest to make contributions to an SDP rather than using your pay to try and pay off more debt that the required payments. Set up an SDP and make contributions to use your money most effectively. Then you can use it for strategic debt elimination once you return from deployment.

Tip No. 8: Consider a lump-sum debt payment with your SDP

Once your return from active duty, your income is likely to decrease so the money in your SDP may be needed to help you transition back to a normal non-deployed budget. You should receive your money in a single lump sum. Then you will need to divvy it up and use it wisely. However, if you have extra money from the account you may consider using it to make an extra payment on your consolidated debt.

Remember that interest rates will no longer be capped at 6 percent and may return to their original higher values. This means it’s in your best interest to pay off the debt before those higher charges can be applied. Using part of your SDP can help you achieve stability quickly without worrying about a large overhang of debt.