Money Matters: Expert Advice on VA Lending & Personal Finance

Money Matters: Expert Advice on VA Lending & Personal Finance

Getting Back on Track after Incurring Unsecured Debt

Question: I’ve gotten into more debt over the last few years and I want to improve my situation. Is there a way to use my VA benefit to pay off debts and feel more stable?

Answer: This is a common question and a good one to think about for gaining financial security. You are not along in battling with debt. According to Ascent, in 2020, on average, American consumers had four credit cards and 61% had at least one. Credit card balances in the United States totaled $893 billion. This doesn’t account for medical bills, personal loans and other unsecured debts. Fortunately, because of your service, you can use your VA benefit for debt consolidation.

Debt Consolidation

Debt consolidation is a method to simplify how you pay back debt to creditors that ideally gives you a lower interest rate so you can pay it back faster. Credit cards are unsecured debt with some of the highest interest rates (up to 29%) and no tangible benefit for your overall financial picture.

How Your VA Loan Can Improve Your Picture

If you own your home, you may be able to use your VA load benefit to consolidate high interest credit card and other unsecured debts into a fixed, low interest rate mortgage loan.

Consolidating debt can immediately improve your cash flow and reduce the amount of interest you pay over time. Also, since VA mortgage loads are secured installment debts, the interest rates are dramatically lower and can offer a tax benefit. Additionally, whether you are a veteran or an active-duty service member, you are offered more favorable terms and fewer restrictions for mortgage qualifying when using your VA benefit. The VA cash-out refinance loan allows you to cash out up to 100% of your home’s equity (not value) to pay debts.

Overall benefits of using the VA loan program include:

  • Fixed Terms
  • Lower Fixed Rates
  • Tax Deductions
  • Ability to Lower Overall Monthly Bills
  • Flexible Guidelines
  • Exclusive Discounts to Qualified Service Members
Two people reviewing a contract to purchase a house

How Much You Can Borrow

The amount you can borrow with the VA cash out loan depends on two factors:

  1. What equity do you have in your home? Equity is the difference between the value of your home and what you owe against it (current mortgage balance). You may be surprised by how much equity you have in your home that you can borrow against using your VA benefit. Home values increase by 3-5% per year on average.
  2. What is your ability to pay this refinance? In order to use a VA cash out loan for debt consolidation, there are specific requirements that must be met:
    • Credit score of at least 620
    • Adequate disposal income based on your area and family size
    • Debt ratio no higher than 41%
    • On-time mortgage payment history
    • No collections within the last 12 months

Do the Math

If you have a credit card with a $5,000 balance at 29.99% interest, and you pay the minimum due each month, it could take 21 years to pay it in full and you could end up paying over $21,000!

Think about it: the $5,000 you spent could cost an additional $16,000 or more of your hard-earned money. If you take out a new mortgage to consolidate your high interest debts, the rate is much lower and, instead of paying the interest with no benefit to you, the mortgage interest may qualify as a tax deduction which could benefit you even more.

How To Get Started

It can be overwhelming to figure out how to pay off debts, but there are many advantages of using your VA benefit. The best place to start is with a knowledgeable VA lender that understands the ins and outs of VA loans and can provide insight into your personal situation. In a brief conversation, you can establish what steps you need to take and how quickly you can take action. Most people are surprised at how easy the process is and by how far-reaching the benefits can be!

Phil Jawny is a professional lender with nearly 20 years of experience in the business and the founder of GoVA Loans. His industry knowledge is extensive, spanning from loan reorganization to commercial mortgages to, most importantly, selling and managing VA Loans. Phil has a passion for serving military families. His goal is simple — to help make the loan process simpler for families so they can get the loans they deserve and build wealth through real estate without hassle. To get ongoing advice or to submit a question for the “Money Matters” column, visit or follow @GoVAloans on Instagram & Twitter.

Leave a Reply