Members of the military dealing with credit card debt face an extra level of penalties if that debt becomes delinquent or excessive: They could lose their security clearance, be denied promotions and, in extreme circumstances, face dismissal.
“Being kicked out or discharged altogether because of excessive debt and/or the inability to pay debt is a huge fear factor in the military,” said Chris Fitzpatrick, deputy director for VeteransPlus, a nonprofit organization dedicated to improving financial literacy in the military.
“Unfortunately, it happens more than people want to talk about.”
Debt always has been a major concern for the military and the reason is obvious: Anyone delinquent in paying their bills could be desperate enough to take a bribe or kickback in exchange for passing along classified secrets.
The Department of Defense (DoD) lays out the rules for receiving security clearance and access to classified information in something called the Adjudicative Guidelines for Determining Eligibility for Access to Classified Information.
Guideline F of those rules speaks directly to the issue with this statement: “Failure to live within one’s means, satisfy debts, and meet financial obligations may raise questions about the individual’s honesty and put people, property or information systems at risk.”
DoD says it does not have accurate data on how many servicemembers were denied a security clearance because of problems with delinquent debts, but someone very familiar with the subject says delinquent debt is the No. 1 cause for denying or revoking security clearances.
“We’re dealing with more than 350,000 (service) men and women and based on what we hear from them, debt is still the No. 1 cause to deny or revoke security clearance,” John Pickens III, executive director of VeteransPlus, said. “The calls we get are often at the 11th hour when soldiers realize their security clearance may be at risk. They may not get promoted, they may have to be re-assigned to a job not requiring clearance. There are consequences.”
The military stresses discipline and responsibility with its members, but the same debt problems that trap civilians, also snare servicemen. Low pay, especially at the entry level, is the primary reason soldiers fall behind. Inexperience handling money is a close second.
From there, the list is very familiar to anyone, military or civilian, who has suffered financial setbacks: overspending; upside down loan obligations; unwillingness to stick to a budget; unexpected medical bills; divorce; gambling and financial illiteracy are some of the symptoms that cause financial stress.
Much of the blame for the problems can be laid on credit card use. Service members aren’t any better than civilians at keeping up with credit card debt. The Defense Manpower Data Center (DMDC) conducted a survey of active military members in 2013 and found 39% were short on cash between paychecks. The DMDC survey also said 16% of those surveyed were maxed out on their credit cards.
VeteransPlus surveyed more than 20,000 active duty members in 2015 and found the debt-to-income ratio among families was 46.5 percent, mostly because of credit cards. Experts say that a 37% debt-to-income ratio is healthy and anything over 43% is a sign that trouble is all but inevitable.
Payday loans and car title loan companies are another major source of financial distress among military members, despite passage of the Military Lending Act in 2007. The MLA restricted lenders to charging no more than 36% on short-term loans to service members, but some still found ways around the law.
For example, the interest rate cap for payday loans applies to loans of $2,000 or less. Anything above $2,000 and the cap no longer applies. For car title loans, the cap applies to loans of six months or less, but if the lender extends the terms beyond that, the cap no longer applies.
“The current rules under the Military Lending Act are akin to sending a soldier into battle with a flak jacket but not helmet,” Consumer Financial Protection Bureau Director Richard Cordray in a CFPB release. “To give our troops full-cover protection, the rules need to be expanded.”
Service members who want to keep all options open – i.e. security clearance, promotion, etc.– have a variety of military debt relief options.
The Servicemembers Civil Relief Act has a number of provisions that will help active duty or deployed military members limit financial responsibilities that might otherwise put them in serious trouble. The SCRA caps interest rates on credit cards, mortgage and certain other loans at 6% and allows service personnel relocated for more than 90 days, to terminate cell phone service and housing leases without penalty.
Most bases now have offices that focus on debt relief for both officers and enlisted personnel. Organizations like VeteransPlus are staffed by retired veterans who have first-hand knowledge of both the problems and solutions regarding debt in the military life.
There also are resources outside the military, such as nonprofit credit counseling agencies that offer free advice on budgeting, debt consolidation and debt management programs that could alleviate the pressure and stress that come with delinquent debt.
The biggest problem is convincing military personnel to take advantage of the options.
“You have to understand the culture of military men and women,” Fitzpatrick said. “They learn to handle situations and become self sufficient in many ways, except for their financial lives. Everything gets paid for – food, room, clothes, travel – and by the time they realize they’ve mismanaged their money, it’s too late. Some get angry, some get scared and they only seek help as a last resort.”
Katz, E. (2015, April 28) Number of Security Clearance Holders Drops 12 PercentRetrieved from http://www.defenseone.com/business/2015/04/number-security-clearance-holders-drops-12-percent/111268/
NA, (2006, February 3) Adjudicative Guidelines for Determining Eligibility for Access to Classified Information. Retrieved from http://www.state.gov/m/ds/clearances/60321.htm#f
NA, ND. 2014 Report on Security Clearance Determinations. Retrieved from http://fas.org/sgp/othergov/intel/clear-2014.pdf
NA, ND. SCRA: Servicemembers Civil Relief Act Overview. Retrieved from http://www.military.com/benefits/military-legal-matters/scra/servicemembers-civil-relief-act-overview.html