The thousands of soldiers coming home this month from Iraq should prepare for one more fight -- over their finances. Experts in the issues facing military families say the next few months will present money challenges to returning service members. More than 12,000 troops returned this month from Iraq as the war drew to a close.
They -- and other service members who may be ending their active duty stints -- will have to contend with:
- A smaller paycheck, lightened by the lack of hazardous duty and combat zone pay.
- Higher interest rates on any loans that were capped by federal law at 6 percent while reservists or other soldiers were on active duty.
- Predatory lenders that surround military bases and prey upon soldiers.
- The urge to make up for lost time with their families by splurging, or just making repairs to long-neglected household items.
Re-entry can present money challenges "It's tough re-entering," says Chris Kukla, senior counsel for government affairs at the Center for Responsible Lending in North Carolina. "You go from what they're going through and then having to readjust to life at home."
The most important advice Kukla and financial advisers have for the returning troops: Don't make any big financial decisions right away, and get advice from free financial counselors provided at the military's Family Readiness Centers. (See 12 tips to help military families avoid financial rip-offs.)
"You're more likely to have somebody coming back from deployment to drop a lot of money on a motorcycle or the latest muscle car," Kukla says. "They're looking for the adrenaline rush."
Brenda Linnington, a veteran and Army wife whose husband had three deployments, says families go through the normal honeymoon period of when their service members come home. "Then, there is acclimation and growing pains that go along with becoming a family again. That brings varying levels of stress depending on where you are as a family and how you handle things," says Linnington, director of the Military Line, a free financial counseling service offered to military families by the Council of Better Business Bureaus (BBB).
"If you add financial difficulty or financial strife into any situation, it becomes very stressful," she says. "For service members returning from multiple deployments in many cases, the effect is just overwhelming."
Less money; more stress Linnington and others say many of the troops leaving Iraq will have to adjust to pay cuts. The military provides additional pay for hazardous duty or combat zone deployments. Once the service members return home, that extra income -- which could have nearly doubled their salaries -- disappears.
"That paycheck is going to get lighter as they transition from overseas back home," says Joseph Montanaro, a certified financial planner with USAA Savings Bank, which caters to military families. "That's certainly a challenge."
Says Kukla: "You have families that get used to the fact that this is how much money we're going to have. When they come back, that money goes away."
Some single soldiers may return from deployments flush with money they've saved up from hazardous duty pay: "They go out and they buy these brand new cars," says Dean Taylor, a BBB education director who teaches money management class to young service members on military installations throughout central Texas. "We see it at Fort Hood," Taylor says. "All these new cars come, and a couple of months later, you see the tow trucks towing them out because they can't pay for them."
Debt regret and buyer remorse are common aftereffects.
"When the newness of that purchase wears off, they are saddled with a tremendous amount of debt," adds Linnington from the BBB. "That, in turn, is stressful."
John Alexander, vice president of the Navy-Marine Corps Relief Society, a nonprofit foundation that offers zero interest loans and grants to sailors and veterans, urged service members not to seek out "quick fix" loans they may be offered on the Internet or elsewhere.
"We have interviewed military clients who say, 'We went to lender X, they didn't ask a lot of questions ... I walked in and out and I had cash in my hand,'" Alexander says. The service member often signs a document authorizing the lender to take the loan payment directly from the military payroll check -- a setup that can lead to problems if there is a dispute about the amount owed.
Relief and aid societies from all of the armed forces offer grants and zero or low-interest loans to service members.
Making up for lost time Some soldiers may feel guilt about being away from their loved ones and attempt to make up for the lost time with exorbitant gifts. Again, financial counselors advise against this, especially if the family budget is still in flux.
"When you look at it from the perspective of the service member, he or she could have been in very austere conditions, being separated from their family and their natural inclination is to make up for lost time," says Montanaro from USAA. The soldier may have missed key birthdays and want to make up for it by buying presents. "They want to make the kids happy," he says. "We buy them that game system they want. Or it could be taking a big over-the-top vacation."
The results: "Not saying, 'No,' when financially, 'No,' is probably the right answer," Montanaro says.
The dynamics of managing money may be different as well. Traditional roles may have flipped. Whereas the soldier may have previously handled paying the monthly bills, his or her spouse has likely taken over the finances -- whether they were competent at it or not.
"When the military member comes back, the financial situation may have changed," Montanaro says. "The spouse at home may have used some retail therapy to compensate for the absence ...That's a reality."
Montanaro, who served in Afghanistan between 2005 and 2006, adds: "When I came back, up until that point, I pretty much did everything on the financial side. My wife had taken the reins on paying the bills. I lost that and never got it back."
Deciding to get out Montanaro and others point out another financial concern for the returning soldiers.
"You may have gone through the deployment cycle multiple times," Montanaro notes. "You might say, 'Hey, I'm going to get out.'"
A federal law, signed in November 2011 by President Obama and designed to encourage private sector employers to hire unemployed veterans, may help. The defense department also has transition programs to help service members prepare for the job market with training in interview skills and resume preparation.
Montanaro advises soldiers to consider how their family budgets will be impacted by health care, food and housing costs if they no longer receive military assistance and allowances for those expenses.
For those considering getting out of the military following their return to the States, they face losing some important protections that military families currently enjoy. For example, the Servicemembers' Civil Relief Act caps interest rates at 6 percent for any loans military families incurred before they began service. That cap goes away when active duty service ends.
The Military Lending Act, a 2007 law that caps interest rates on closed-ended loans to military personnel at 36 percent, only applies to active duty service members. That law has been credited with reducing the number of military families trapped paying high-interest payday loans.
The new Consumer Financial Protection Bureau, a federal watchdog agency, has launched the Office of Servicemember Affairs to help focus attention on keeping both military families and veterans out of harms way in the financial marketplace.
Montanaro's advice about getting out of the service: "Look and explore before you leap ... Look and see what's on the other side, before you do that."
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