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Excessive Debt Can Ruin Your Military Career – What You Need to Know and How You Can Avoid a Bad-Conduct Discharge

Military and debt don't mix. Military members need to know that excessive debt can ruin their military career. It can result in punishment, loss of security clearances, separation, & even a bad-conduct discharge. Learn more about Article 134 of the UCMJ, which covers military debt, and tips to get out of debt.
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Military members are held to a higher standard than civilians. You must maintain a certain level of fitness, you must have a professional bearing at all times, and you cannot abuse alcohol or illegal drugs. Failing to do these things can be extremely detrimental to your career.

But did you also know that you cannot have excessive debt? Just like being overweight, being arrested for drunk driving, or using illegal drugs it can ruin your career.

Table of Contents
  1. How too Much Debt Can Destroy Your Military Career
  2. Your Security Clearance Background Check Looks at More than Just Debt
    1. Security Clearance Background Check
    2. Reducing Behaviors to Numbers
    3. What Happens When You Apply for a Security Clearance?
    4. Financial Difficulties Can Impact Readiness
  3. The UCMJ requires military Members to Pay Their Debt
  4. What to Do if You Have Too Much Debt
    1. Look up the Servicemembers Civil Relief Act (SCRA)
    2. You Can Receive Free Help on Base
    3. Consider a Debt Management Plan
  5. Discharge for Failure to Pay Debt
  6. Action Steps – How to Control Your Debt and Improve Your Credit Report
    1. How to get out of debt quickly:
    2. How to manage your credit score:
  7. How to Repair Your Credit:
    1. Pay all bills on time
    2. Pay off your overdue accounts
    3. Pick a budgeting method and stick to it
    4. Shop with credit cards
    5. Tweak your credit card use
    6. Hold on to your old cards
    7. Use credit repair services
    8. Consider credit repair software
  8. Do Your Part – Identify the Problem Before It Becomes Too Severe

How too Much Debt Can Destroy Your Military Career

On the surface, having too much debt doesn’t seem like a problem that could lead to a bad-conduct discharge from the military. But too much debt can cause many problems for your military career.

The two biggest issues that debt causes to military careers concern security clearances and readiness (ability to perform your duty without restrictions, including the ability to deploy).

Your Security Clearance Background Check Looks at More than Just Debt

Many jobs in the military require security clearances. Having your security clearance revoked or your application denied can get you reclassed into a career field that doesn’t require a clearance or kicked out of the military altogether. And sometimes the choice isn’t yours.

Your credit report is often included in your background check when you apply for a security clearance or a new job. Why is your credit report a security clearance consideration or in a job search? Here are some reasons your amount of debt and your credit report can impact your background check:

Security Clearance Background Check

Your credit report is a sign of your trustworthiness. If you will be working with sensitive information, or if you are in a position where you are handling money, the government or another employer wants to know whether or not your poor financial situation would make you vulnerable to bribe attempts.

If you have a lot of debt, there is the concern that you would be willing to sell classified or proprietary information or that you might embezzle the funds you oversee.

Reducing Behaviors to Numbers

Your credit report is often considered a direct reflection of the financial risk you represent to an employer, lender, or other entity. Every day, employers, insurers, lenders, cell phone providers, and others make decisions about who they think will be reliable based on information in your credit report. It’s not personal.

These organizations simply crunch the numbers and base their decisions on the law of averages. The way to get that in your favor is to increase your credit score.

What Happens When You Apply for a Security Clearance?

Your credit report will be pulled whenever you apply for a security clearance or renewal. Did you know that your security clearance application can be denied if your debt-to-income ratio is too high?

Most security clearances are good for either 5 (Top Secret) or 10 years (Secret). This means you would have to reapply for your security clearance every few years. This would give military members time to improve their credit score and settle any outstanding debts if they knew their clearance application or renewal was pending.

However, the DoD moved to a rolling security clearance review in 2018. That means the DoD frequently reviews credit reports and scores when determining whether or not one should receive their security clearance.

Why does the military review security clearance applications’ credit history and debt? The short answer is that historically, financial difficulties are one of the biggest risk factors or warning signs for espionage.

Financial Difficulties Can Impact Readiness

The military has been fighting budgetary constraints for the last decade or more. That includes reductions in funding for weapons, equipment, personnel, benefits, and more. In short, the military needs all its people to be ready to Fly, Fight, and Win at any time.

Financial problems can impact one’s readiness. And readiness is one of the biggest things Commanders are looking at when assessing their end strength. What good is someone to the military if they cannot perform their duties at home or abroad because they are struggling with excessive debt or family issues that are impacted by too much debt?

The military requires its members to be able to perform their duties. Failure to do so can lead to a discharge from the military.

The UCMJ requires military Members to Pay Their Debt

As a military member, you know that you are required to pay your debts. If you didn’t know this, it is spelled out for you in Article 134 of the Uniform Code of Military Justice (UCMJ).

Here is a brief excerpt:

Paragraph 71. Article 134—(Debt, dishonorably failing to pay)

b. Elements.
(1) That the accused was indebted to a certain person or entity in a certain sum;
(2) That this debt became due and payable on or about a certain date;
(3) That while the debt was still due and payable the accused dishonorably failed to pay this debt; and
(4) That, under the circumstances, the conduct of the accused was to the prejudice of good order and discipline in the armed forces or was of a nature to bring discredit upon the armed forces.

c. Explanation. More than negligence in nonpayment is necessary. The failure to pay must be characterized by deceit, evasion, false promises, or other distinctly culpable circumstances indicating a deliberate nonpayment or grossly indifferent attitude toward one’s just obligations. For a debt to form the basis of this offense, the accused must not have had a defense, or an equivalent offset or counterclaim, either in fact or according to the accused’s belief, at the time alleged. The offense should not be charged if there was a genuine dispute between the parties as to the facts or law relating to the debt which would affect the obligation of the accused to pay. The offense is not committed if the creditor or creditors involved are satisfied with the conduct of the debtor with respect to payment. The length of the period of nonpayment and any denial of indebtedness which the accused may have made may tend to prove that the accused’s conduct was dishonorable, but court-martial may convict only if it finds from all of the evidence that the conduct was in fact dishonorable.

d. Lesser included offenses. None.

e. Maximum punishment. Bad-conduct discharge, forfeiture of all pay and allowances, and confinement for 6 months.

And guess what? Every place of business near your base also knows you are required to repay your debts. That is why so many businesses are willing to extend credit to service members. The businesses know that one way or another, they will receive their money. A quick phone call to a First Sergeant or Commander can get things taken care of very quickly.

What to Do if You Have Too Much Debt

The first thing you need to do is assess the problem. Start by making a list of all creditors that you owe money. Be sure to include all current loans and fixed payments. Be sure to include all members of your household if you have joint finances.

Your list may include some or all of the following:

  • Rent / mortgage
  • Utilities, including cell phone bill, cable, Internet service, etc.
  • Student Loans
  • Car Loan
  • Credit Card Debt
  • Consumer Debt (other loans, store credit cards, payday loans, title loans, etc.)

Next, add these up so you know how much money you owe each month. In another column, list your take-home pay. Be sure to include all household income if you have joint finances.

Hopefully, your take-home pay is greater than the amount of your monthly fixed expenses, including your debt. If not, you need to take immediate action to get ahead of the curve.

Look up the Servicemembers Civil Relief Act (SCRA)

The Servicemembers Civil Relief Act (SCRA) offers military members many protections, including the ability to have interest rates reduced to 6% when they join the military or activated if they are members of the Guard or Reserves. Some companies will also reduce interest rates if you deploy.

The SCRA only applies to loans taken out before joining the military, or in the case of members of the Guard or Reserves, before they were activated. You can contact your lender, and they will be required to reduce your interest rates for the duration of your military service (again, only for eligible loans).

Some lenders, including credit card companies, will even retroactively give military members cash back if they had been paying higher interest rates than was required by the SCRA. Here is a list of credit cards that give cash back under the SCRA.

Here is more information about interest rates under the SCRA.

You Can Receive Free Help on Base

Most Supervisors, First Sergeants, and Commanding Officers will work diligently with troops before actions need to be taken that can ruin a career. Most bases offer a variety of counseling services. These may include financial planning courses such as budgeting, credit repair, beginner investing, and tax preparation. Check with your local installation for more information about which courses are available on base.

If this assistance is unavailable, it is common for supervising NCOs, First Sergeants, or other volunteers to offer budgeting help and learn skills such as balancing checkbooks.

Consider a Debt Management Plan

A debt management plan may seem like a great way to fix the problem. But the reality is that most debt management plans are just a band-aid. Real change has to come from your spending habits. If you don’t change your habits, you will never get ahead.

A debt management plan may help you get out of the downward spiral and get ahead with your payments. Make sure you understand the issue, how the debt management plan works, and how the company that helps you set it up is compensation. Many non-profit organizations can help you set up a plan. Start there first (some companies charge excessive fees and may put you further in debt).

Discharge for Failure to Pay Debt

I know this article sounds like doom and gloom. It’s not intended to come across that way. There is nothing inherently wrong with having debt. Many take out loans to make large purchases (school, homes, cars, etc.).

Some military members have too much debt or simply refuse to honor their obligations.

The problem comes when military members have too much debt.

Too much is a loose term. There is no fixed definition. So look at it like this:

  • Does the debt impact your ability to perform your job?
  • Can you meet all your financial obligations?
  • Are you robbing Peter to pay Paul (borrowing from payday lenders or credit cards to make payments on other loans)?
  • Is your paycheck enough to pay all current debt payments and fixed living expenses?
  • Do you simply refuse to pay certain loans?

Making a one-time mistake is just that. Continuing to show a pattern of misconduct is when you can run into legal trouble with the military.

Military members who repeatedly fail to make payments or honor their debts can receive various punishments, including being discharged.

The maximum punishment is a Bad-conduct discharge, forfeiture of all pay and allowances, and confinement for 6 months.

Action Steps – How to Control Your Debt and Improve Your Credit Report

The amount of debt you have and your credit report aren’t necessarily directly related. But one can impact the other. When applying for a security clearance, your entire background will be reviewed, not just your financial risk.

How to get out of debt quickly:

  • Create a list of all your debts (credit cards, car loans, mortgages, student loans, medical bills, and anything else you may have).
  • Organize the information. List the minimum amount due on each payment and the interest rate.
  • Create a repayment schedule, starting by paying the minimum on all loans except the one with the highest interest rate. Note: Some people prefer to start with the loan with the lowest balance to pay that off more quickly, so they can direct that payment toward the next lowest balance. This is called a debt snowball and is another excellent way to pay off debt quickly.
  • Repeat this process until you have paid off most or all of your loans.
  • You can find more detail in this guide to getting out of debt quickly.

How to manage your credit score:

  • Start with a copy of your credit report. Here is how to get a free copy of your credit report each year. Credit reports are critical to understanding what your credit score means.
  • Next, get copies of your credit scores. Credit reports and scores are different – the report is like a report card, with a list of all open accounts and any negative actions. The score is a numerical representation of your report. Here is how to get a free credit score. Credit scores change regularly, and with a free credit tool, you can get regular updates any time your score changes with feedback on your scores.
  • Correct any errors on your credit report. Identity theft is an unfortunate occurrence that can hit your credit score hard. Mistakes also happen with reporting; if you don’t correct them, they’ll seriously hurt your score. Make sure your score is accurate, and work to amend any errors you find ASAP.
  • Sign up for a credit monitoring service to track your progress. You don’t have to hound the credit bureaus whenever you need more information. With a credit monitoring tool, you can get tips and updates. Two free options are Credit Karma and Credit Sesame.

How to Repair Your Credit:

Pay all bills on time

Get up to date on all bills. Next, continue making all payments on time, every time. Finally, pay off your loans, and try not to take out new loans, rack up more debt, or open new accounts. All of those actions can harm your credit score in the short term.

Pay off your overdue accounts

Your credit score is affected every day your overdue accounts remain unpaid. Drill down on past-due accounts to improve your overall score.

Pick a budgeting method and stick to it

How you choose to budget isn’t as important as your willingness to stick with the plan. Track every dollar and factor in your emergency fund, savings, essentials, and non-essential purchases. Having a plan in place will help you maintain your debt repayment strategy. And if there is any excess money, you can apply it to your credit repair goals.

Shop with credit cards

A credit card can be one of the keys to unlocking financial freedom when used responsibly. With rewards, low interest, and debt-transfer options, credit cards can help you prove to the credit bureaus that you can utilize credit sensibly, which will have a major impact on your score.

Tweak your credit card use

There are some practical ways to boost your score with credit cards beyond simply making payments on time. Your credit score considers credit ratios and how many lines of credit you have open. With that in mind, you can boost your score by increasing a card’s credit limit or opening more credit card accounts. Again, use these cards responsibly and ensure you can track your spending with each one.

Hold on to your old cards

Closing out a credit card can lower your score. Again, bureaus want to see your credit card use over time. Even if you aren’t regularly using a card, you might want to keep it open to help your score. If you need to toss one of your cards, make it the most recent card to keep your score where you want it.

Use credit repair services

If you need a little help repaying your debts, there are a host of credit repair companies who will work to consolidate your debts and help you repair your credit score. A few popular companies to consider are:

Consider credit repair software

Much like a robo-advisor manages your investments, this software handles your credit repair online. You get the service of a credit repair company without ever leaving home. These services are an affordable tool to help you meet your credit goals.

Following these steps will put you in a better financial position and make it easier for you to be approved for a security clearance or other background check.

Do Your Part – Identify the Problem Before It Becomes Too Severe

Excessive debt can have a severe impact on your career and your personal life. If you have problems with debt, seek assistance now – before the damage becomes too great. Your supervisor, First Sergeant, or base Family Support Center is a great place to seek more information.

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About Ryan Guina

Ryan Guina is The Military Wallet's founder. He is a writer, small business owner, and entrepreneur. He served over six years on active duty in the USAF and is a current member of the Illinois Air National Guard.

Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about personal finance and investing at Cash Money Life.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free Personal Capital account here.

Featured In: Ryan's writing has been featured in the following publications: Forbes, Military.com, US News & World Report, Yahoo Finance, Reserve & National Guard Magazine (print and online editions), Military Influencer Magazine, Cash Money Life, The Military Guide, USAA, Go Banking Rates, and many other publications.

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  1. Jim Ream says

    Hi Ryan, just wondering if a judgment against a service member resulting from a car accident could cause trouble with a military career if it is one the troop cannot afford to repay? Does the military discipline a troop for filing bankruptcy? Any information or resource on this would be greatly appreciated.

    Thank you,

    Jim

    • Brittany Crocker says

      Hey Jim,

      If you’re a current service member, you should disclose your situation to your chain of command as soon as possible. They may be able to point you to resources that can help – either way, honesty is the best policy regarding any situation that could affect your military career.

  2. jason allen says

    I would love to have someone I owe a debt to call my command and request payment, there is something called the FDCPA that protects consumers from hostile collection attempts just like that. If this happens to you simply go to your local court and file suit against the debtor for violations of the FDCPA and defamation of character. Once they realize whats actually going on settle out of court and have the terms be, dropped case for settled debt. I’m sick of people preying on small families and military members.

    • Katie says

      What if I, as another military member, call a commander because of a debt owed to me personally? I have it in writing.

      • Ryan Guina says

        Hello Katie, Thank you for contacting me. I wouldn’t call a Commander if I were a military member. This is a personal issue and not a military issue.

        I would start by sending the individual a certified letter stating the money is due within 10 days. If that doesn’t work, I would consider hiring a lawyer or taking the person to small claims court.

        You could also try the JAG or base legal office, but I’m not sure how much they will be able to assist with since this isn’t a military issue. They may, however, be able to give you some advice on how you could handle this on your own, possibly by hiring a lawyer or taking the individual to small claims court. I hope this points you in the right direction.

  3. Ryan says

    William,

    Thank you for clearing up my wording.

    Zen Panda,

    My comment about the military forcing repayment of debt is based on events i have witnessed while enlisted in the USAF. I don’t think the military can actually “force” members to repay debt, but I have seen some commanders give direct orders to repay debt. If the troop does not he is then disobeying a direct order. Can they “legally” enforce troops to pay? I’m not sure. But they can kick them out if they don’t pay, and many (not all) troops prefer paying to getting kicked out.

  4. ZenPanda says

    “Military members are required by the UCMJ to pay their debt

    As a military member, you know that you are required to pay your debts. If you didn’t know this, it is spelled out for you in Article 134 of the Uniform Code of Military Justice (UCMJ).

    And guess what? Every place of business near your base also knows you are required to repay your debts. That is why there are so many businesses willing to extend credit to service members. The businesses know that one way or another, they will receive their money. A quick phone call to a First Sergeant or Commander can get things taken care of very quickly. I’ve even seen Commanders order an allotment against a military member’s pay check to pay their debts.”

    Unfortuneatly I see the opposite everyday. I am a military wife & I work with the local courts. The local military installation does nothing to enforce repayment of debt.

  5. William Henderson says

    You can not be denied a security clearance or have your clearance revoked based solely on a high debt-to-income ratio. Your clearance can be denied/revoked due to “consistent spending beyond one’s means, which may be indicated by . . . high debt-to-income ration . . . .” There are other reasons one can have a high debt-to-income ratio that will have no effect on a security clearance

    William Henderson, Author
    Security Clearance Manual

    • tydo says

      i really need some help. im tryna get a top secret security clearance soon. i am in debt and am unsure if they approve it.

      • Ryan Guina says

        Hello Tydo,

        Thank you for contacting me. Having debt isn’t the worst thing in the world – it’s excessive debt that matters. I don’t have a firm formula for what level of debt is considered “excessive.” It’s partly the amount of debt, but also your ability to repay the debt.

        The best I can say is to continue working to repay your debts as quickly as possible, and work with the agency doing your security clearance. They will let you know if your debt is an issue. I wish you the best, and thank you for your service!

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