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If you’re 18 years old, you may be shaking your head at this headline. I understand. A lot of people fear credit cards. However, these days, it’s not as easy to get a credit card, and most companies won’t give you a credit limit that can get you in ridiculous amounts of trouble. There are tremendous benefits to owning a credit card before you join active duty enlistment – and it’s all thanks to something called SCRA benefits.
If you’ve never heard of the Servicemember’s Civil Relief Act (SCRA), now is the time. Whether you’re thinking about joining up or already serving, these benefits will change your life. I don’t want to make this post all about the benefits of SCRA though. You can read about those in the link above. I’m simply going to highlight what relates to credit cards and loans.
Everything is backdated.
If you had credit cards or loans before you joined the military, the SCRA will be your new best friend. This is because the biggest and best benefit of the SCRA states that any interest rate on a loan prior to enlisting Active Duty military must be below 6% interest rate. That may not seem like much, but if you have credit cards with high-interest debt (15%, 22%, etc.), or a car loan at 9%, it will now drop to at least 6%.
For me, it looked like this:
- CREDIT CARDS | I had 4 credit cards prior to joining, all above a 6% interest rate. Most of them had thousands of dollars of debt on them. My CapitalOne cards dropped to a 4% interest rate, and they credited my account with the difference in interest I had paid since my enlistment began. That was about $300. My Discover card dropped from a 19% rate to 6%. They also credited me the amount I had paid in interest since my date of enlistment – around $150.
- STUDENT LOANS | Most government student loans are already under the 6% cap, but most private loans are not. I had two private loans through Sallie Mae with 11% and 9% interest rates. They totaled around $9,000 when the SCRA benefits went into effect. Before joining the military, I would pay about $80 in interest every month. My payments at that time were barely covering it. After the SCRA benefits went into effect, my interest rates dropped to 4%, cutting my monthly interest by more than half! I have since paid off those stupid Sallie Mae loans.
As you can imagine, these benefits changed my life. The key thing to remember is that most loans won’t qualify if you obtain them after enlisting Active Duty. They must be on the record before you leave for BMT.
The Benefits Remain Through Your Entire Active Enlistment
Probably the coolest thing to note is that your credit cards and loans will remain at that lowered interest rate through your entire active enlistment. As long as I re-enlist, my CapitalOne card will stay at 4%. My Discover card will stay at 6%. These are extremely low-interest rates if you have a limited credit history (like a high schooler) or a lot of debt (like myself).
I have taken full advantage of these benefits and have transferred higher interest debts that I obtained after enlisting, like my car loans, to greatly reduce the amount of interest I pay over time.
Guard or Reserve?
Unfortunately, Guard and Reserve can only receive these benefits when on Active orders, but it is still a huge benefit for you. I had several friends in the Guard take advantage of these while in BMT and technical school. They were given reduced interest rates for nearly 6-12 months. You can also use these benefits when deployed.
If You Don’t Have Credit, Now Is the Time
Let’s be clear here. I’m not telling you to run out and buy a car and get into a bunch of debt. However, if you have considered applying for a credit card and are about to enlist or leave for Basic Training, now is the time to do it so you can take full advantage of the benefits.
If you have any questions, please let me know or you can google the Servicemember’s Civil Relief Act. I have highlighted just one of the major benefits in this post. Good luck!