New Study: Veterans More Likely to Suffer Credit Problems, But Save More

Military veterans are more likely to suffer through credit problems, underwater mortgages and late house payments than the civilian population.

Those are some of the findings from a 2017 analysis funded by the FINRA Investor Education Foundation, an organization that provides underserved Americans with the tools and skills to succeed financially.

The good news? The problems Vets experience are not fatal. There are logical solutions.

• How can veterans better manage their credit? The key is education and utilizing the network of organizations that provide sound financial advice.
• How can veterans prevent going underwater — when they owe more on their house than it is worth — on their mortgages? VA loans generally require no down payment, of course, but a better strategy is to hold off on a home purchase until there’s enough cash for a sizable down payment to avoid unnecessary fees.
• How can veterans avoid late mortgage payments? First, check other fixed expenses to determine whether too much money is committed elsewhere. If not, the payments might be too high, so mortgage refinancing could be in order.

William Skimmyhorn, an assistant professor of economics at the United States Military Academy at West Point  authored the FINRA study titled “The Financial Welfare of Veteran Households,’’ and said that Vets are actually faring well in a lot of financial categories.

“Naturally, people will focus on differences or issues where veterans may be facing challenges,’’ Skimmyhorn said. “But it’s also important to sit back and realize that veterans are generally faring comparably to civilians and in some cases, doing even better.’’

Veterans and Savings

Skimmyhorn pointed to the finding that veterans have better savings habits than comparable civilians.

The FINRA report analyzed responses from about 27,000 adults (about 3,200 veterans and 24,000 non-veterans). They were gathered by the 2015 National Financial Capability survey. Military veterans comprise about 8% of the American population, numbering 22 million overall.

The sample size is significant enough to reach some conclusions. Skimmyhorn said there are statistical similarities between active duty military personnel and veterans, leading to a theory that financial behaviors are learned and reinforced over time.

Military life emphasizes discipline and responsibility, so it’s probably not surprising that veterans have better savings habits than comparable civilians. It’s also a life of frequent moves, overseas deployment and unexpected costs, all factors that could contribute to a history of credit problems.

“It’s very common for military members and veterans to fall into the trap of thinking in terms of monthly payments for purchasing big-ticket items, such as cars, houses and even expensive consumer goods,’’ said Air Force veteran Ryan Guina, founder and editor of The Military Wallet, a personal finance Web site. “There are several (contributing) factors, namely the large number of off-base stores that push payment plans and desire among many members to ‘keep up with the Joneses’ and spend their money as it comes in.

“The problem is that it doesn’t take too many big-ticket purchases to tie up one’s monthly income, leaving the military member broke before their paycheck even arrives. Making a habit of this can lead to years of financial difficulty.’’

Here’s a closer look at the pressing financial issues identified in the FINRA report:

How Can Veterans Better Manage Their Credit?

In two words: Seek help. And there are plenty of options for managing credit, but you must take advantage of available resources.

“Having trouble managing credit is often a sign of other financial difficulties, including struggles with budgeting, money management and debt,’’ Guina said. “The best thing to do is seek out qualified help from a nonprofit organization.’’

Many bases offer free financial counseling services. Military OneSource, a Department of Defense organization, provides free financial counseling to current and retired military members and their families.

The FINRA study said veterans are 9% more likely than the civilian population to have problematic credit behaviors. Why do veterans often struggle with credit? It’s likely that being moved or deployed on short notice has set up a historically adverse effect on credit plans.

According to a 2015 survey conducted by the National Foundation for Credit Counseling (NFCC), the average military family had 7% higher unsecured debt balances (nearly $500 more than the average), 16% fewer tangible assets ($11,000 less than the average) and 15% higher monthly debt-related expenses ($200 more than the average).

Additionally, a 2016 report by the Consumer Financial Protection Bureau determined that military members and their families are much more at-risk in debt collections than the general population. The CFPB report said debt collection represents almost half (46%) of all military complaints filed. By comparison, debt collection represented only 26% of the total complaints received by the CFPB.

For veterans who are struggling, counselors can provide credit solutions, help you consolidate debt, and provide information on the following:

• Learning personal finance basics.
• Resolving complaints on a credit record.
• Learning about military savings programs.
• Creating a plan to pay off debt.
• Researching large purchases.
• Making a savings plan.
• Understanding the long-term consequences of bankruptcy.
• Debt consolidation options for veterans

For veterans slipping into debt, there are proven ways to reverse the cycle. Portions of a sound financial plan could include:

• Getting Out Of Debt: Making a plan to pay more than the minimum payment will increase the odds of finding financial freedom.
• Building A Budget: Tailoring a plan will add clarity. It helps to pull records from banks and credit cards for at least the past three months to determine what’s going into various spending categories.
• Eliminating Unnecessary Spending: It’s always enlightening to examine the entertainment budget. It could be time to restrict eating out, going to the movies or treating yourself to that special latte. Painful, yes. But in the long run, the added discipline will pay dividends.
• Improving Your Credit Score: Make all your payments on time. Improve your debt-to-income ratio. Don’t let any bill go into collections. It’s surprising how much a credit score can improve in one year.
• Using Common Sense: There is “good debt,’’ such as purchasing a home, buying a car or entering a college savings plan. But stay away from “bad debt,’’ such as running up a credit-card balance, getting lured into new credit cards that promise low interest rates, seeking cash advance loans and borrowing money for big-ticket items that just aren’t needed.