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

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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…

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? In fact, just like being overweight, being arrested for drunk driving, or using illegal drugs, it can ruin your career.

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 are with security clearances and readiness (ability to perform your duty without restrictions, including the ability to deploy).

Credit Reports and Security Clearances

Many jobs in the military require security clearances. Having your security clearance revoked or having your clearance application denied can either 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.

What Happens When You Apply for a Security Clearance?

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

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 some 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 credit history and debt when reviewing security clearance applications? 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 of their 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 are unable to perform their duties, either at home station or abroad because they are struggling with excessive debt or family issues that are impacted by too much debt?

At the end of the day, the military requires its members to be able to perform their duties. Failure to do so can lead to a discharge from the military.

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).

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 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.

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 have a good idea of 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, then you need to take some 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 when they are 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 the 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 even include financial planning courses such as budgeting, credit repair, beginner investing, tax preparation, and more. Check with your local installation for more information about which courses are available on base.

If this assistance is not available, it is common for supervising NCOs, First Sergeants, or other volunteers to offer budgeting help and learning 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.

That said, a debt management plan may help you get out of the downward spiral and get ahead with your payments. Just make sure you understand the issue, how the debt management plan works, and how the company that helps you set it up is compensation. There are many non-profit organizations that 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 people 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 up to and including being discharged.

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

Do your part. 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 founder and editor of The Military Wallet. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL 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), Cash Money Life, The Military Guide, USAA, Go Banking Rates, and many other publications.

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  1. 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.

  2. 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.

  3. 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.

  4. 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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