Ask Kim


Rate Reductions for the Military

Kimberly Lankford

Some active-duty personnel may qualify for an interest-rate cap on their credit cards, mortgages and other loans.



Is it true that members of the military can get the interest rate on their loans and credit cards reduced to 6%?

Yes, in certain circumstances. The Servicemembers Civil Relief Act provides members of the military with special protection that caps the interest rate on their credit cards, mortgages and other loans at 6% while they are on active duty. To be eligible for the interest limits, you must have incurred the debts before you entered active duty, and your military service must affect your ability to repay them. Although people who took a pay cut to join the military can benefit from the law, it is most helpful for members of the Reserves and National Guard, who often must leave higher-paying civilian jobs for months, or even years, when called up. (Credit cards, mortgages and other loans taken out jointly with a non-military spouse also qualify for the rate reduction.)

You can request the rate reduction on your own or get help from an Armed Forces Legal Assistance office. See the Armed Forces Legal Assistance Web site for contact information and sample letters to send to lenders. To prove that your income has been reduced, you may be asked to submit copies of your military orders, earnings statements and tax returns. But you don’t need to mount a lobbying offensive to support your case. “The creditor has the burden of proof to show that the service member’s entry on active duty did notmaterially affect his or her ability to meet financial obligations,” says Samuel Wright, director of the Service Members Law Center for the Reserve Officers Association.

Your rate will rise when your active duty ends, but the higher rate will apply only to the remaining balance. “The extra interest -- the difference between the higher and the lower rate -- while on active duty is forgiven, not just deferred,” says Wright.

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To make the most of the provision, pay down as much of your credit-card balances as possible while the rate is low and more of your payment will go toward the principal rather than interest.

The Servicemembers Civil Relief Act provides other benefits -- such as giving you the right to terminate an apartment lease if you have a permanent order for a change of station or are deployed to a new location for 90 days or more. In addition, you can end a car lease without incurring an early-termination fee if you are deployed for 180 days or longer. See the ROA’s Service Members Law Center Servicemembers Civil Relief Act page for more information about the law.

For more about personal-finance issues for military families, see our special report for military families.

Got a question? Ask Kim at askkim@kiplinger.com.



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