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For members of the U.S. military — whether they are active-duty enlisted, Guard or Reserve — there is a common theme for many: low pay and high debt.

These same soldiers find themselves on military bases surrounded by many offers to finally buy things they’ve always wanted, but could never afford.

Some soldiers simply want laptops and technology accessories in order to be able to connect to loved ones back home. Knowing this, an entire industry of high-cost lenders has started to prey upon servicemembers nationwide.

In fact, far too many military personnel and their spouses are being bombarded with questionable loan products and excessive credit card offers. This happens before deployments take place and after soldiers return home as well.

Here are four credit traps facing military members and their families.

1. Payday Loans

Payday loans are a multi-billion dollar business with scores of storefronts within easy access of military bases.  If a servicemember doesn’t want to be seen going into one of the stores near the base, no worries. There are more than 35 million links to sites offering payday loans, cash advances and check advances.

In 20 minutes, any soldier can get a payday loan with nothing more than a military ID, a bank statement and a paystub.

Unfortunately, payday loans are enormously costly, often averaging APRs (annual percentage rates) of 300% to 450%.

The largest number of servicemembers impacted by payday loans are the junior enlisted personnel — and the majority of servicemembers are considered to be junior personnel, making less than $31,000 a year.

Add to that the young age at which servicemembers often marry and start families, and it’s easy to see why this population is so at risk for predatory lending of all kinds.

Since payroll errors in the military are common, these young families are put in a situation where they only have a portion of their paycheck, thus increasing their likelihood of turning to payday loans. But current laws don’t help them navigate the payday loan universe.

Many states only regulate payday loans lent to permanent residents, and due to the nature of deployments and military policies most military personnel are not posted to their home states. So payday lenders take advantage of this loophole and target servicemembers without fear of regulation. Some aggressive payday lenders take advantage of loopholes in federal law, too.

Even though the federal Military Lending Act caps short-term payday loans to military members at 36%, payday lenders get around this prohibition by offering products that don’t meet the definition of “short-term loans.” For instance, loans that last for more than 91 days, loans larger than $2,000, and auto-title loans with terms longer than 181 days, are all not covered by the 36% rate cap.

2. Credit Card Debt

FINRA (Financial Industry Regulatory Authority), the Treasury Department and the President’s Advisory Council on Financial Literacy developed a survey focused on military personnel and their financial capabilities.  The survey found that while some military families have been able to manage their finances without much difficulty, an increasing number are struggling.

Military families have unique concerns such as relatively low income, spouses who have difficulty with steady employment due to repeated deployments, and the high cost of a most certain relocation (known as a PCS or Permanent Change of Station) every few years.

These situations can create an environment of high credit card use.  The high usage often translates to high debt, high interest rates and a lifetime of minimum payments.

3. Student Loan Debt

Excessive student loan debt in the military is being created by the “perfect storm” of confusing interpretations about the Post-9/11 GI Bill and aggressive marketing by for-profit schools.

This storm has led to scores of guard, reserve and active-duty military members to taking on tens of thousands of dollars in debt that could have been avoided. The Post-9/11 GI Bill pays all tuition and fees for an in-state student at a public college or university, $1,000 annually for books and supplies and a housing allowance that averages $1,430 monthly.

But only 52% of those who are using the GI Bill are finishing their degrees, including 72% who attend public colleges, 15% at private colleges and 13% in for-profit colleges. The average student loan debt for these graduates is nearly $26,000.

The bad news is that 48% of the servicemembers leave school with no degree and substantial debt.  Since tuition assistance is now paid directly to institutions, not to the soldiers or veterans, it is easier for schools to convince them to sign over their benefits.

4. Co-Signed Loans and Leases

Relationships start in a whirlwind for many young servicemembers.  As soon as they can move off the base they want to get an apartment and set up “housekeeping.”

With or without the benefit of marriage, joint financial decisions are being made, some good and some bad. Co-signing and joint purchases are not uncommon. It becomes a way to secure the relationship against the uncertainty of deployments and other stresses that come with a career in the military.

If a military relationship doesn’t stand the test of time, the co-signed loan or lease will. The final consequences of committing to a co-signed agreement often shows up on the co-signer’s credit report.

The co-signer may not know about missed payments or repossessed cars until the damage is done. It is only after collection companies are calling and lawsuits have commenced that the co-signer is aware that payments have been missed.

Better Alternatives

There are certainly many other credit traps ready to trip up our military men and women.

It is a slippery slope when any servicemember begins to rack up debt that cannot be repaid. The military can penalize personnel for nonpayment. They can be reprimanded with a loss of security clearance, demotion and even discharge.

Knowing that financial stability is a major factor for readiness, wellness and security, it is extremely difficult for servicemembers to deploy or be productive when struggling with excessive debt.

Fortunately, there are better alternatives for military members facing financial hardship. Free financial counseling is often available, through the military itself or via consumer aid groups such as the Association of Credit Counseling Professionals. Additionally, medication is complimentary, compensation for food can be provided, and the Air Force even offers interest-free loans for individuals with economic difficulties.

Finally, legal protections with financial benefits also exist for U.S. servicemembers. Under the Servicemembers Civil Relief Act, those entering active duty can have interest rates on credit cards, student loans and mortgages reduced to 6%. They can also cancel car leases without penalty, put mortgage payments temporarily on hold, and keep their homes out of foreclosure while they are deployed.

The challenge is in getting our military members educated about their options regarding credit and debt – and then financially and legally protecting them and their families whenever and wherever they need help.

After all the protection they offer us, that’s the least we can do.

[Editor’s note: Tracking your credit scores, even when your facing an overwhelming amount of debt, can help you understand how your debt affects your credit. There are free services that help you track your scores, such as those available through Credit.com – which also offer an analysis of your credit reports, and can help you come up with a plan to pay off debt and build your credit.]

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  • Reighn9

    Some things may be diferent since I was in the military, i.e. current war & deployments, but the pay is still lower than the average worker. Payday loans entice every young person, not just servicemen, a servicman can take an advance on his pay in lieu of a payday loan depending on the circumstances. The main problem is it is difficult to establish any type of credit or credit history while in the military. You can’t get approved for any credit cards because of that and of no time at current address. As far as moves being costly, I never lost any money there, the government always paid plenty to move me and my family to the new location.

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