Mortgage rates might be at historic lows but the interest rates on credit cards and other so-called unsecured loans seem to be reaching levels once the domain of loan sharks. If your credit score falls below a certain number card companies won't bat an eye as they raise your APR to 29.9%.
It's hard enough for most of us to get out from under an ever growing mountain of card when lenders raise their interest rates but for members of the military, it's even more devastating because in many cases they've taken a cut in pay to serve their country.
Fortunately, due to the Servicemembers Civil Relief Act, active duty military personnel could qualify for special protection. This includes putting a cap on interest rate for credit cards, mortgages and other loans at 6%. But to be eligible, you had to have incurred the debt before you began active duty, and your military service must be impacting your ability to repay them.
Although this helps anyone who took a pay cut to join the military, it especially helps members of the Reserves and National Guard, some of whom had to leave left higher-paying civilian jobs for months, or even years, when they're unit is 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. You may be asked to submit copies of your military orders, earnings statements and tax returns to prove your income has been reduced.
In an interview with Kiplinger's, Samuel Wright, director of the Service Members Law Center for the Reserve Officers Association, pointed out that it is the creditor who has the burden of proof to show your entry into active duty did not materially affect your ability to meet financial obligations.
Wright says any interest above 6% is forgiven while you're on active duty, but it will return to the higher rate after your active duty is over and that higher rate will only apply to the remaining balance. To make the most of this provision, you should try to 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 act provides other benefits, as well, 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.
You can find more information at the Pentagon Federal Credit Union's website at www.penfed.org.