If you are a veteran or a military member struggling with making minimum monthly payments on high-interest debts, it may be time to consider a veteran debt consolidation loan. These loans are great tools for getting debt under control and improving financial stability. A debt consolidation loan rolls multiple debts into one loan with a low interest rate, so you don’t have to juggle multiple payments and can enjoy a lower monthly payment.

What Is a Veteran Debt Consolidation Loan?

A veteran debt consolidation loan, or a VA cash-out refinance, is backed by the Department of Veterans Affairs. It allows borrowers to capitalize on their home’s equity and use the funds to consolidate debts. While this is one option for consolidating debt, it isn’t the only one.

There are other debt consolidation options available for debt relief, such as a balance transfer card or a personal loan, depending on the amount you owe and the nature of the debt.

Benefits of VA Consolidation Loans

There are several benefits of getting a VA debt consolidation loan that makes it a good debt relief tool to use.

  • If you have a VA loan on your home, you may be eligible for a much lower VA loan rate.
  • It is easier to qualify for a Military Debt Consolidation Loan (MDCL) compared to conventional loans.
  • You’ll be able to save a considerable amount of money in interest charges.
  • You may be able to get out of debt sooner since the monthly payment will likely be lower.
  • You can get a longer repayment term if needed.

Types of VA Debt Consolidation Loans

Military debt consolidation loan is a program available to all six branches of the American military: The Army, Coast Guard, Marines, Air Force, Navy, and Space Force. However, there are other options offered by online lenders, banks, and credit unions that you can use to consolidate your credit card debt, personal loans, and other high-interest unsecured debts.

Army Debt Consolidation Loan

Army members who own a home and have built some equity can apply for a military debt consolidation loan to replace their high-interest debts with a low-interest loan. Additionally, they can also get personal loans from banks or credit unions. While these debt consolidation loans typically have a higher interest rate compared to MDCLs, they’re a good option for those who are not homeowners.

If you mainly have credit card debt, you can get a balance transfer credit card. Many banks offer 0% APR for an introductory period of up to 18 months. You can transfer the balance from all your cards to the new card and then pay it off within that introductory period to save money in interest.

Air Force Debt Consolidation Loan

The same options that are available to army personnel are also available to Air Force members for consolidating their loans. If you have a good credit score, you may be able to qualify for a lower interest rate on a personal loan or may be eligible for a balance transfer credit card. If you have a FICO score of 720 to 850, you may be able to qualify for personal loan interest rates of 9%-13%.

VA Loan Consolidation

Other than an MDCL, veterans and military service members who are struggling with debt can consider a personal loan or balance transfer credit card. Another option is to consider a home equity loan if you can’t get an MDCL. The average home equity loan interest rate is 8.61%, which may be higher than an MDCL but is still much lower than credit cards. Another option is to borrow from family or friends to pay off debt.

Finding the Right Debt Consolidation Loan

Before you apply for a debt consolidation loan, it is important to do your homework and compare lenders and loan offers to ensure you’re getting the best possible deal.

Veteran Debt Consolidation Loan Lenders

Active service members and veterans have access to unique loan opportunities offered by several lenders. Here are three such lenders that offer the best consolidation loans.

  1. USAA: USAA offers a number of financial services to military personnel and their families. They offer personal loans that can be used for consolidating your debts.
  2. Navy Federal Credit Union: This credit union has been serving veterans and military families since 1933. It offers personal loans that are a good fit for consolidation.
  3. Pentagon Federal Credit Union: This credit union once exclusively served military members but is now open to everyone. The personal loans they offer have no prepayment or origination fees. They also offer co-signed and joint loans.  

Trusted Veteran Debt Consolidation Loan

When looking for a veteran debt consolidation loan, here are a few important tips to keep in mind:

  • Check if the lender offers any special loan programs for veterans.
  • Compare interest rates offered by multiple lenders to find the lowest possible rates.
  • Read the fine print to check which other fees you might have to pay, such as loan origination fees and prepayment penalties.
  • Check the reviews of the lender to ensure they have a good track record.
  • Prequalify with the lender so you know the exact terms, loan amount, and interest rates you qualify for.

Applying for a Veteran Debt Consolidation Loan

The process of applying for a debt consolidation loan will depend on whether you’re applying for a VA cash-out refinance loan or a conventional personal loan to consolidate your debts. If you’re applying for cash-out refinance, here is the general process you’ll need to follow.

  • Get in touch with a lender to compare your refinancing offers.
  • Request your Certificate of Eligibility (COE). You’ll need to show this certificate to the lender to prove that you qualify for the loan benefit.
  • Provide the necessary documents to the lender, such as pay stubs, W-2 forms, income tax returns, and any other documents they requested.
  • You may have to pay a VA funding fee and other closing costs at loan closing. Follow the lender’s closing process for the loan to get access to your loan funds.

If you’re applying for a personal loan, you may be able to complete the application process online. Once you finalize a lender, you’ll typically have to fill out an online form and upload the relevant documents, such as identification proof, proof of residence, pay stubs, and income tax returns. The lender will review the application and your credit report, and if approved, the loan is typically funded in one business day.

Veteran Debt Consolidation Loan Requirements

If you’re applying for MDCL, there are a few requirements you’ll need to meet. You must own a home with adequate equity. You’ll also need to demonstrate that you’ll be able to repay the loan. Additionally, you’ll have to provide the lender with a Certificate of Eligibility for a VA-backed loan.

Your debt-to-income ratio (DTI) is an important factor that will determine if the VA approves your MDCL application. This ratio measures how much of your monthly income goes towards debt repayment. If you have a very high DTI, the lender may not approve your application.  

Veteran Debt Consolidation Loan Rates

“VA Military Debt Consolidation Loans offer some of the most advantageous loan terms of any method of borrowing money,” explains Brad Reichert, Founder and Managing Director of Reichert Asset Management LLC. “They require lower credit scores and looser debt-to-income requirements. They also offer longer repayment terms, loans up to 100% of the appraised value of the home, payment terms of up to 30 years, no monthly mortgage insurance premiums, no loan prepayment penalties, and lower closing costs than regular bank loans,” adds Reichert.

If you have a VA home loan, you may qualify for an MDCL, which is usually at a lower interest rate when compared to civilian consolidation loans. If you’re applying for a balance transfer card, you’ll usually get a 0% interest rate for an introductory period of 6-18 months. Keep in mind, though, that if you fail to clear the balance within that introductory period, you’ll have to pay the regular high interest rate on the credit card.

Personal loan interest rates vary from 6% to 36%. The interest rate you’ll qualify for will depend on your credit score. Home equity loans typically have a very low interest rate of around 8%, mostly because your home is used as collateral. This means that if you miss payments, you stand at risk of foreclosure.  

Alternatives to Veteran Debt Consolidation Loans

While debt consolidation is a great way to get your debt under control, there are many other debt relief options available if you don’t qualify for a debt consolidation loan. Consider these alternatives.

Debt Settlement

If you have over $10,000 in unsecured debt and have missed a few payments, consider debt settlement. You can enroll in a program with a debt settlement company to reduce your original debt and settle your account for less than you owe. The settlement company can negotiate with your lenders and set up a separate bank account so you can start putting aside money each month for a lump sum settlement.

Debt Management

Nonprofit credit counseling agencies can enroll your debts in a debt management program. Your credit counselor will review your debts, income, and budget and set you up with a plan to tackle those debts effectively. They can also negotiate with your lenders to waive penalties or reduce interest rates. You’ll need to make a single payment each month, which the agency will then distribute to your lenders.


If you don’t qualify for MDCL or any other programs listed above and if your debt is overwhelming, bankruptcy may be the last resort option for your financial situation. Chapter 7 and Chapter 13 are the two main options for individuals. Chapter 7 is straight bankruptcy, where the court will liquidate your assets and use the proceeds to pay off your lenders.

Chapter 13 involves a court-approved repayment plan of three to five years, during which you pay off your debts. Once you complete the repayment plan, the court will discharge your remaining debts, including medical bills, credit cards, payday loans, and personal loans. Bankruptcy does not eliminate student loans, tax debt, child support, or alimony. Bankruptcy can be reflected in your credit history for 7 to 10 years and can lower your credit score.

The Bottom Line on Veteran Debt Consolidation Loans

Whether you are a veteran or an active duty service member, there are options available to you if you’re facing financial difficulties. One option is a Military Debt Consolidation Loan (MDCL) if you’re a homeowner with equity. Other options include personal loans and balance transfer credit cards. If you’re eligible for either of these options, you can save money, pay off your debts faster, and ease your debt stress.