Money Matters
Expert Advice on VA Lending & Personal Finance By Phil Jawny, MIRM, CMP, CSP
Getting Back on Track after Incurring Unsecured Debt Question: I’ve gotten into more debt over the last few years and I want to improve my situation. Is there a way to use my VA benefit to pay off debts and feel more stable? Answer: This is a common question and a good one to think about for gaining financial security. You are not alone in battling with debt. According to Ascent, in 2020, on average, American consumers had four credit cards and 61% had at least one. Credit card balances in the United States totaled $893 billion. This doesn’t account for medical bills, personal loans and other unsecured debts. Fortunately, because of your service, you can use your VA benefit for debt consolidation. Debt Consolidation Debt consolidation is a method to simplify how you pay back debt to creditors that ideally gives you a lower interest rate so you can pay it back faster. Credit cards are unsecured debt with some of the highest interest rates (up to 29%) and no tangible benefit for your overall financial picture. How Your VA Loan Can Improve Your Picture If you own your home, you may be able to use your VA loan benefit to consolidate high interest credit card and other unsecured debts into a fixed, low interest rate mortgage loan.
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Consolidating debt can immediately improve your cash flow and reduce the amount of interest you pay over time. Also, since VA mortgage loans are secured installment debts, the interest rates are dramatically lower and can offer a tax benefit. Additionally, whether you are a veteran or an active-duty service member, you are offered more favorable terms and fewer restrictions for mortgage qualifying when using your VA benefit. The VA cash-out refinance loan allows you to cash out up to 100% of your home’s equity (not value) to pay debts. Overall benefits of using the VA loan program include: • Fixed Terms • Lower Fixed Rates • Tax Deductions • Ability to Lower Overall Monthly Bills • Flexible Guidelines • Exclusive Discounts to Qualified Service Members How Much You Can Borrow The amount you can borrow with the VA cash out loan depends on two factors: 1. What equity do you have in your home? Equity is the difference between the value of your home and what you owe against it (current mortgage balance). You may be surprised by how much equity you have in your home that you can borrow against using your VA benefit. Home values increase by 3-5% per year on average.