"Military families have the same struggles as any other American family: paying off debt and saving for financial independence. However military families also struggle with frequent transfers around the globe," says Doug Nordman, author of The Military Guide to Financial Independence and Retirement and founder of The-Military-Guide.com Opens in new window. ( Learn more about Doug Nordman's Story on Prudential's Everyday Bravery podcast Opens in new window.)
In this country, 78% of the population1 lives paycheck to paycheck, and most don't have to deal with the money strains that military households do. Unfortunately, predatory lenders know this, and they flock to bases and military-heavy communities looking to profit. Once you understand how these lenders work, you can better understand why your family should take steps to avoid them.
The scale of predatory loans and the military community
Payday loans charge some of the highest interest rates Opens in new window anywhere and often lead borrowers into a spiral of growing debt.
In 2006, Congress passed the Military Lending Act Opens in new window to protect active duty, reserve duty, and active guard service members with a 36% interest rate cap. That is much better than the typical payday loan rate, but still a source of financial harm for most borrowers. Even high-interest credit cards rarely reach 30%. Being aware of competitive interest rates can help families avoid the many "payday loan alternatives" that are merely another version of the same high-interest, short-term loans you get from a payday lender.
"The most important factor to avoid predatory lending is to avoid needing it in the first place," says Air National Guard member Ryan Guina, creator of the financial website The Military Wallet. "This means building an emergency fund and trying to avoid taking on too much debt."
By creating a financial plan, you can avoid the need for loans in the future. Military households have the most reliable paycheck there is, and with the right tools and strategies, military families can turn around difficult financial scenarios and build a strategy for long-term prosperity.
Automate your finances to put savings on autopilot
Automating your payments is one of the easiest ways to ensure your bills get paid. When you miss a due date for a credit card, mortgage, or other loans, it can show up on your credit report for seven years. Because it takes the better part of a decade to fix credit, it is much better to avoid missed payments as much as possible.
To make sure you have enough cash in your checking account to cover the bills, schedule payments near your payday, stick to a budget, and check in on your bank account regularly. Also, look for a checking account with no overdraft fees or fee-free overdraft protection options, just in case.