What to Do When Debt Becomes a Problem

What to Do When Debt Becomes a Problem Military

Sometimes we find ourselves in a really tough spot financially. More often than not, debt plays a major role. So, what do you do when your debt is taking control of your life?

In short, you need to get help and make some changes. Luckily, there are a lot of great resources available to service members and veterans. You’re not the first person to run into issues with your finances.

How to Tell You’re in Too Deep

The first step toward getting yourself in a better place financially is becoming aware you’ve got an issue. For us, it took years to realize we had a problem with our finances. At one point, we were putting rent on a credit card, and this still didn’t give us the wake up call we needed.

Have you started playing “due date roulette” by paying one bill first, hoping you’ll “figure it out” by the due date of another bill? This is your first sign you really need to get ahead of impending financial disaster. When you’re unable to pay all your bills for the month on time, every time, you need to course correct.

I highly suggest you get on a budget right away. This doesn’t have to be super elaborate; you just need to get clear on all the money coming in and all the money going out. If you have more bills than income, you need to make some adjustments.

If you need a simple budget template to get started, I’ve got one below you can use. You can also hear more about our personal budgeting system on my other blog and podcast. Here’s a copy of what we use in Excel (no strings attached, it’s free, no email required):

Getting Assistance

If you’re on active duty, there are so many resources available to you! You can utilize one of the many personal financial counselors contracted by the Department of Defense to help you get a basic budget, pull a free credit report, and more. You can speak with them in confidentiality and they won’t report back to your command (unless there’s a threat of physical harm to yourself or others). Search for the closest financial counselor at Military OneSource.

If you’re more of a visual person, you can check out the worldwide Personal Financial Counselor map. It’s nice because you can just click on your state or country where you’re stationed and it will list the personal financial counselor (PFC) nearest to you along with the rest of the PFCs in the area.

The Power of Perspective

Getting a plan to get back on track is really important. For one, it helps to take a step back, zoom out, and pinpoint where the issue is. Just looking at your finances in a different way can help a lot. Also, if you’re married, having a third-party help mediate and explain things to both of you can be really helpful.

Often, we all come from different backgrounds and may interact with money and prioritize expenses differently. Getting on the same page is key.

What if It’s Too Late to Fix?

If your house is getting foreclosed, you’re getting evicted, or cars are being repossessed, you may feel it’s “too late” and all hope is lost. It’s not, but you’re really in emergency mode now. You cannot wait this out or just “figure it out” on your own.

It’s never too late to turn things around, but if you’ve found yourself in a deep financial hole, it may take some time and professional assistance to get back on track. Your financial situation probably didn’t end up this way over night, so it’s not going to be corrected overnight either.

I don’t want you to lose hope. Many people have taken a situation which looked like the end of their financial future and turned it into an amazing comeback story to help others. However, you’ve got to take care of any immediate needs first.

Protecting Your Security Clearance

A major concern for anyone still in service is the potential impact on your security clearance. You may be wondering if these financial issues will affect your clearance, if and when you should report it to your command, and what you need to do to avoid having your personal life invaded by security managers and your supervisors.

These are all valid concerns. The number one thing you need to do is start working on a plan to get your financial issues resolved. Ignoring or hiding issues will only make things worse.

When to Report

In my talks with security professionals on the topic, they said it’s probably not needed to report until an actual incident (repossession, foreclosure, collections action) happens. For the most part, if it’s something that will show up on your credit report, it’s reportable. Until then, it’s probably best to focus on fixing the issue at hand (if your command or position has other procedures for this, make sure you follow them).

There’s not a guarantee if and when the financial issue will be identified by security personnel or your command. However, if your command or security manager finds out about it first, you’re going to have a much harder time. The Code of Federal Regulations Title 32, Subsection 147.8, gives some criteria for when financial considerations become an issue with clearance adjudication (the technical term for the process to grant, change, or revoke your clearance).

In short, they’re looking at serious financial difficulties which may influence you to do something illegal or unethical (e.g. divulge secret information, assist with access, etc.). Some of the mitigating factors they list to help your case to keep your clearance include the issue being a one-time incident, tied to a hardship out of your control (losing a job, death of a family member, etc.), good-faith efforts to correct the issue, and most importantly (to me at least), is if you meet criteria as “has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control.”

In other words, the key to maintaining your clearance when financial issues occur are:

  1. Seek assistance and work to solve the issue/get current on payments right away.
  2. Don’t let the problem reoccur.
  3. Report proactively when a significant issue occurs (CFR 32, 147.2).

How Often do People Lose Their Clearance?

Overall, losing your clearance for any reason, including financial hardship, is pretty rare. The most recent data I could find from the DCSA DOD CAF, out of 836,461 adjudication actions, only 1,810 (0.2% of all actions) resulted in a denial or revocation of a clearance.

In other words, as long as you’re trying to do the right thing and self-report, when necessary, you’ll probably be okay. At a minimum, it shows you’re trying to do the right thing. This goes a long way with supervisors, security personnel, and commanders as well.

Charting a Path Forward

If you’re still in the thick of things, you may feel like you’re drowning. It’s important to get a foothold of some sort so you can take a moment to regroup and get back on the right track.

Once again, I highly recommend getting some assistance – especially if you’re feeling stressed or overwhelmed. If you’re married or share finances with someone else, you need to get them on the same page too. You may need to get other assistance if the issue stems from a different problem in your life.

For instance, if you or your spouse has an addiction (gambling, shopping, alcohol, drugs, etc.) causing financial strain, you’ll need to address this first (or at least at the same time). Otherwise, you’re just going to be right back in the same situation over and over again. Maybe it’s not that severe.

Get Creative

For me, I actually had my wife change the password to my Amazon account. This might seem like a weird tactic, but it works. I used to just buy things (hello, One-Click ordering) and not think about it until later. Then I’d go into reaction mode, cut spending, sell stuff, or take on some more side work to “fix” it.

The good thing about that I guess is that I’ve developed a lot of useful skills for making money quickly. Regardless, you just have to approach the issue much the same as your first-aid training:

  1. Identify Major Issues (we’re skipping returning fire, because this is self-inflicted)
    1. Income Flowing In (Airway Restriction, Check for Pulse)
    1. Spending Going Out (Blood Loss, Stop the Bleeding)
    1. Eliminate Costly Habits or Other Issues (Controlling Shock, Stabilize)

Once you take care of the major issues and get on a budget, you can move on to less serious concerns (non-life-threatening conditions). Often, we get caught up in looking for the solution before we properly identify the problem.

If you don’t find what’s causing your overspending and stop it, you’ll never be able to make enough money to get back to good. As a matter of fact, the approach of trying to earn your way out of overspending can just make financial issues grow and snowball over time. The higher your income, the more debt you’ll likely have access to.

Don’t Make it Worse

It may be tempting to try to handle things on your own by trying to get a payday loan as a temporary fix or use a credit consolidation service. I can’t stress this point enough: more debt only further complicates the issue. Only in extreme circumstances would this make sense.

Before you even think about using a payday loan service or credit consolidation company, look at what the military aid and relief organizations have to offer. If you meet with a financial counselor on post, they can help direct you where you need to go for your particular service or organization. Often, getting with the personal financial counselor is the first step in the process anyway.

Requesting a grant or a loan would probably trigger a notification to your command because (more than likely) your commander has to sign off on a zero-interest loan or grant from one of the relief societies. I know it can be difficult to ask for help, but if your only alternative is a shady service like a payday lender or shifty debt consolidation service, you really don’t have a lot of options left. Take the help, give yourself some breathing room, make a debt management plan, and get yourself to a better place.

For more information, check out the military aid organizations below:

Army Emergency Relief

Navy Marine Corps Relief Society

Air Force Aid Society

Coast Guard Mutual Assistance

Other Resources

The Utah State University Extension has some nice resources for creating a debt management plan (DMP). Their Power Pay Tool is actually really simple and easy to use. I signed up for a free account (just need an email address) and played around with it. I really liked how you can calculate the estimated time to payoff for each loan or credit card you have (e.g. 1 year, 3 months).

There may be other resources available too. The CCCSMD was one which was shared with me by a Personal Financial Counselor as another potential resource. Just be careful getting help from any for-profit debt consolidation places. Often, they’re just working to get your business so they can collect the interest payments instead of the original lender.

Final Thoughts on Debt Troubles

Overall, there’s one sure way to never end up with debt issues: never take out a loan. I know this might feel impossible (it did for us at first), but it’s really not. Debt is definite – you have to pay back what you borrow. The more debt you take on, the more you’re losing to the bank for the “privilege” of using your future earnings now.

If you’ve found yourself in a financial bind, remember to give yourself some grace. It’s important to take full ownership of your personal situation, but you don’t need to beat yourself up about it either. Look at it like a tuition payment to the school of hard knocks, learn your lesson, then don’t repeat the same mistakes.

If this article was helpful to you or you found it interesting, please share it with someone else who might benefit. Also, if you’re an enlisted service member, please sign up for the Enlisted Money Newsletter to get updates and exclusive content you won’t find anywhere else.

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