Thanks to Valentina Wilson for contributing this article. You can learn more about her and her website at the end of this article.
According to the Department of Veteran Affairs, there were about 20.4 million veterans in our country in 2016!
While serving our country, veterans faced unique challenges every single day, often leaving little or no time to concentrate on managing finances!
Veterans can face new challenges as they return to civilian life as well. During that time, they might need a loan to start a business, buy a home, or for any other reason!
This transition is the time when many veterans tend to take out conventional loans and fall prey to the debt trap! Many of them are completely unaware of the several loan options specifically designed for them. Of course, make wise decisions when taking out a loan. Here are some tips which will help you look for the appropriate loan options and manage your debts efficiently.
Use loans designed for veterans
“Part of the transition challenge is there are things that go away; maybe it’s a tax-free housing allowance, tax advantages or health care that comes with little or no cost on the military side,” says J.J. Montanaro, an Army veteran and financial planner with USAA.
The first thing which might come to your mind about taking out a loan is approaching a bank! You can certainly do that!
But a conventional loan usually has a short repayment period and high Annual Percentage Rates (APRs). In most of the cases, the repayment period varies from 2 to 5 years with APRs ranging from about 9% to 36%!
What if you get to know about some loan offers which are exclusively for veterans like you!
Well, there are few banks or credit unions which offer loans to the veterans.
For example, Navy Federal Credit Union: It’s the world’s largest credit union with more than 7 million members!
If you are active-duty military, a veteran, a Department of Defense civilian employee, or a family member of any current member, you can seek membership!
You can take out a personal loan up to $50,000 with repayment periods up to 15 years and APRs ranging from 7.99% to 18%.
United Services Automobile Association (USAA)
If you are active military, veterans, spouses, and surviving spouses of USAA members, individuals whose parents are or were USAA members, and former USAA members, you are eligible for being a member of this bank!
And the membership to this bank is free!
You can get a loan from $2500 to $50,000 with repayment period from 2 to 7 years. And the APRs usually range from 8.99% to 18%.
In fact, the loan amount usually gets disbursed by the next day to your account.
If you have a good credit score, you can take out a loan at the USAA’s lowest APR, i.e., 8.99% including a 0.25% discount for autopay.
Opt for a Veterans Administration (VA) Home Loan
It started as a part of the GI Bill of Rights in 1944, which provided ample benefits to the returning World War II veterans!
VA home loan program can pave the way for your homeownership as it offers home loans both to active military personnel and veterans.
You would be surprised to know that in 2018, about 611,000 buyers opted for VA home loans which covered more than $161 billion in purchases.
But what makes a VA home loan different from a traditional home loan?
- No down payment
You need to make a minimum down payment when opting for a home loan from a bank.
But in VA home loan, you don’t have to pay anything as a down payment. Rather, you may finance up to 100% of your purchase price.
- No mortgage insurance
Usually, creditors ask you to pay for mortgage insurance if you make a down payment less than 20%. This insurance is known as private mortgage insurance (PMI) for a traditional loan and a mortgage insurance premium (MIP) for an FHA loan. Mortgage insurances are made to protect the creditors if you default on your loan.
On the other hand, VA home loans don’t require mortgage insurance.
- No prepayment penalty
You might decide to sell your home if you no longer want to own it or are moving for any other reason. A VA loan doesn’t have a prepayment penalty or early-exit fee.
Moreover, you can refinance your existing VA loan into another VA loan through the agency’s Interest Rate Reduction Refinance Loan (IRRRL) program or switch into a non-VA loan at any time!
You can also opt for a cash-out refinance loan and use the extra amount to repay your unsecured debts like credit card bills. However, before taking out such a loan, shop around and take out a suitable loan which you can manage effectively.
However, you can be savvy enough during your active military life, so that you don’t need to depend on loan(s).
Plan your budget
“I believe the biggest thing service members can do is to develop and stick to a budget,” Jelinski-Hall, Senior Enlisted Advisor, National Guard Bureau.
Creating a budget is an integral part of financial planning! You should track your monthly expenses along with your income from all sources. Then, establish a plan for each dollar that of income you receive, which will help you improve your financial health. Budgeting helps you identify excess spending, especially on things that you don’t use, and also help jumpstart your savings.
Create an emergency fund
Life is uncertain and you need to be prepared for unexpected events. Financial emergencies can put people in a vulnerable position, sometimes forcing them to use short-term, unsecured loans to pay for those emergencies. So, it’s always advisable to save a portion of your income into an emergency fund. Read this article to learn more about the appropriate size of your emergency fund.
You may opt for high-yielding savings account for your emergency fund. It will help you to accumulate more funds as the interest offered in these accounts are relatively higher.
It may take significant time to build your emergency fund. But it will help you, in the long run, to brace yourself for those “rainy days!”
Valentina Wilson is a personal financial blogger. She loves to analyze personal financial matters and help others manage their finances in a better way. Traveling is also her passion. She loves to travel and explore different places all by herself.
To connect with her, go to Twitter @Valenti11423079, or visitBestdebtconsolidation.org.
If you have any questions or would like to learn more about developing strategies to pursue a prosperous and safe future, contact me today at Derek.Merkler@Parsonex.com! You can also visit my website to learn about how I help our service members and veterans plan for and achieve financial independence.
My blog discusses a myriad of financial topics and challenges, book reviews, and commentary on current events in the financial world to benefit our military and veteran community. I attempt to be as thorough as possible when examining each subject but can never account for every possible scenario. Please remember to consult with your advisers for advice on your particular situation. Thank you for reading!
Advisory Services offered through Parsonex Advisory Services, Inc. 8310 S. Valley Highway, Ste. 110, Englewood, CO 80112 (303) 662-8700.