Military Families Struggle with Mounting Debts

Rachel Jackson, whose husband Gregory is a Petty Officer Second Class stationed in Guantanamo Bay, has $12,000 in credit card debt, a problem made worse by eight moves in 10 years and the Navy's slow reimbursement for expenses.To help cover costs, the 29-year-old tappedhigh-interest payday loans and leaned heavily on her credit cards before the debt mushroomed.

The looming debt is worrisome to Jackson, who as a volunteer liason between her base's commanders and families, sees the toll that financial stress can take on military couples. In fact, the divorce rate among military couples is on the rise. In the fiscal year that ended Sept. 30, 2009, the Pentagon estimates there were an estimated 27,312 divorces among the nearly 765,000 married members of the armed forces. That's a divorce rate of 3.6%, an increase from 3.4% a year earlier.

Jackson takes part of the blame for her family's financial predicament, saying they made ill-advised purchases, such as buying a cell phone for their eight-year-old daughter. "We lived beyond our means," she says. But it's not entirely her fault.

Military families have long struggled with financial issues. During a deployment, service men and women may be forced to rely on a spouse or a friend to mind their accounts. Back at home, there's the cost of constantly relocating and just merely raising a family. And the recession has clearly done nothing to help the situation. Unemployment among new veterans has also risen, and now stands at about 14.7%, significantly higher than the national average which hovers near 10%.

The War Against High-Interest Loans

Making matters even worse, military members and their families are often the targets of unscrupulous lenders. After all, they have a steady paycheck and many of them are so young when they join the military they know little about personal finance. Some look for quick cash from payday loans, in which people get small cash advances that carry steep interest rates and high fees.

This particular problem seems to have improved since a 2007 law was passed capping payday loan rates at 36%. (Yes, 36%!) Car loans, too, have come under scrutiny. The Pentagon is fighting to put car dealers under the purview of the Consumer Financial Protection Agency because so many service members get snookered with bad deals and high interest loans.

"There are still plenty of questionable loans being offered," says Holly Petraeus, the wife of Iraq war Commander Gen. David Petraeus and the director of BBB Military Line, which provides consumer education to service members. "Sometimes you can fool yourself. A lot of people find that they have more month than money."

Petraeus points to increasingly aggressive credit card companies as an example of a problem she didn't have to face as a young Army wife. "Credit cards were not an issue back then," she says. "There was not the available plastic that there is now. Back in my younger days it was a cash or check society.'

Getting Military Families Back Into the Black

According to the advocacy group Veterans for America, almost half of the soldiers scheduled to deploy to Iraq and Afghanistan come from the National Guard, many of whom have been on earlier tours of duty. The long rotations of service has taken a huge toll on the financial lives of the National Guard's men and woman. Since 2007, unemployment among members of the Reserves and National Guard has quadrupled.

One New Jersey Guard unit recently mobilized 13 married couples, 15 brothers; eight brother-sister pairs; and five father-son combinations. National Guard units also have a high percentage of single parents in their ranks.

The problems have gotten so bad that the U.S. Department of Defense and the Pentagon have been working toward improving financial literacy among service men and women and policing usurious lenders and scammers. One such program offers military members a savings account that pays an annual interest rate of 10%.

There are also a number of organizations that are trying to help military families with their finances. The Consumer Federation of America has Military Saves, which encourages services members and their families to reduce their debt load and save money. The Better Business Bureau has a site geared toward members of the armed forces. Military.com offers advice to people being deployed and the U.S. Department of Defense provides advice on its Military Homefront site. Kiplinger's offers a list of organizations here.

Rachel Jackson is currently getting debt counseling from a non-profit organization that helps consumers manage and reduce their debt. She now says her debts are :semi" under control.

Even with her financial problems, she is glad her husband joined the Navy, which offers them good benefits including health care and a pension after 20 years of service. She wonders if her problems would be worse in the civilian world where unemployment and access to affordable health care remain major issues. She may have a point.