While anyone can incur overdue bills, you may not think about members of the military being in trouble. Yet, a Consumer Financial Protection Bureau report indicates that around the time they leave active duty, a significant number of young servicemembers either become delinquent in their payments or have defaults or other negative marks on their credit report. And that doesn’t even consider current inflation levels. Keep reading for more about debt and delinquency after military service.
Military Members and Post-Service Debt
The above report also shows that delinquencies and defaults are between two and 10 times more apt to show up on a credit report in the six months after service ends, as compared to the six months prior. The report focuses on vehicle loans, credit cards, and personal or retail installment loans. This is in addition to medical and non-medical debt.
For those who served between seven and 35 months – after their first permanent assignment but before end-of-first-contract separation — late payments are more common. This is as opposed to those who serve briefer or longer terms.
Consequently, the credit scores of such servicemembers drop shortly after separation and don’t rebound for at least 12 months after leaving the military. The decrease is most precipitous for those who served between seven and 35 months, as well for those who leave with a near-prime credit score or less, as opposed to those with a better score.
Before Delinquencies and Collections, and Outcomes
According to the report, few military members had delinquencies or other negative marks on their credit reports when they entered service. This is partly because most new members had “thin” files — if they have any kind of credit history. Just 8 percent had any delinquency, default, or third-party collections account. So, in short, these servicemembers at the time of entry had no poor credit histories.
Further Study Needed
If young servicemembers have a personal, retail, or other kinds of installment loan at the time of separation, they are especially likely to default. However, since these kinds of loans are linked to a myriad of disparate purposes and business types, it’s challenging to detect trends for this kind of debt. The additional investigation could help bear out why military members incur such obligations and whether servicemembers with such loans typically have credit issues. Check out these debt relief grants for veterans.
Further, more study is needed regarding income and tenure, in terms of pattern drivers. According to the U.S. Census Bureau, veterans with up to five years of service in 2015
had median base pay earnings of about $30,000 in the first year following their military exit. For servicemembers who leave before age 25, the median drops. Those who separate at paygrade E-3 or less had even lower earnings. These data suggest that the income of at least some young vets may drop markedly in the year following active-duty departure.
Moreover, such post-service earnings are based on a sample of employed veterans – not those who weren’t working. Estimates from the Congressional Budget Office indicate that roughly 92 percent of male vets ages 22 to 24 were employed. Of those, less than 15 percent were jobless between 2008 and 2015, the years examined in the report. Some 94.5 percent of veterans ages 25 to 34 were employed, with the average jobless rate pegged at 8.2 percent.
In addition, more research is needed regarding possible connections between defaults and why a servicemember left active duty. For example, military members who separated due to disability may have a harder time finding a job and consequently find it more difficult to handle existing debt. Also, military members who receive less-than-honorable discharges may be ineligible for veterans’ benefits and may also have more difficulties finding employment. In any case, more understanding is needed regarding the link between employment, delinquency, and service history.
Debt and delinquency after military service are fraught and complex, and further research is needed. However, the fact is that many veterans experience financial woes within a year of leaving service. If that is you, or someone you know, debt settlement may be in order. For that, we recommend Freedom Debt Relief.