By Bill Lyons | Updated on January 29, 2025
TABLE OF CONTENTS

    VA debt consolidation loans are a great tool for veterans, active military members, and certain spouses to obtain cash when there is equity in a home. For those struggling with high amounts of monthly debt, getting high interest debt under control can help with financial stability.

    Veterans Affairs debt consolidation loans are backed by the VA, which loosens the qualifications for borrowers. When you are just getting your financial health under control, a military debt consolidation loan can be an excellent tool to help you manage higher-interest debt and improve your financial well-being.

    KEY TAKEAWAYS

    • A VA cash-out refinance allows you to tap into your home’s equity and get a cash payment. 
    • You can use the cash from a VA debt consolidation loan for virtually anything, from paying off credit card debt to funding home improvement projects. 
    • A VA debt consolidation loan can be a great option for qualifying veterans if they need to pay for unexpected expenses or if the interest rate attached to their debt is greater than their mortgage’s interest rate.

    What Is a VA Debt Consolidation Loan?

    A VA debt consolidation loan—also known as a VA cash-out refinance—is a loan that is backed by the Department of Veterans Affairs. Taking out a debt consolidation loan for veterans allows borrowers to capitalize on their home’s equity and get cash payments from the lender.

    Borrowers can use the money from a VA cash-out refinance to consolidate debts, cover emergency expenses, fund home improvement projects, and more. The process of getting a VA debt consolidation loan can take up to 30 days when you work with a reputable lender ready to process your application.

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    How Does a VA Cash-Out Refinance Work?

    To get a VA cash-out refinance loan, you will submit an application to your lender. Your lender will consider multiple factors—such as the value of your home, the amount remaining on your mortgage, and your current financial standing—to determine how much money you’re eligible to receive and what your new mortgage terms will be.

    Your VA cash-out refinance loan will replace your current mortgage. Once you agree to the terms of your VA debt consolidation loan, you’ll receive the money you were approved for and your new mortgage will go into effect. As far as the money you get from a VA cash-out refinance, you’re free to spend it on anything you’d like.

    VA Debt Consolidation Loan Qualification Requirements

    There are a number of debt consolidation loan requirements to consider when applying for a VA cash-out refinance. Although a VA cash-out refinance is considered to be a fairly flexible loan type, borrowers must still meet minimum eligibility requirements in order to take advantage of this option.

    To qualify for a VA cash-out refinance, you must meet the following requirements:

    • Obtain a Certificate of Eligibility (COE)
    • The home attached to the loan must serve as your primary residence
    • Your credit score must be 550 or higher
    • You must demonstrate proof of income
    • The home must undergo an appraisal and pest inspection

    Benefits of VA Debt Consolidation Loans

    VA debt consolidation loans offer several compelling benefits, making them a valuable tool for managing your finances effectively. With more flexibility, a veteran debt consolidation loan is a practical solution to helping you achieve your financial goals. Some of the benefits include:

    • Lower interest rates: If you have improved your credit score and overall financial profile since you first obtained your mortgage, you may qualify for a consolidation loan with a lower interest rate, reducing your monthly payments and overall debt.
    • 100% cash-out: You can pull cash out up to 100% of the value of your property, giving you financial flexibility.
    • Simplify payments: Rather than managing multiple debts with different rates and fees, a military debt consolidation loan allows you to convert everything into a single payment.
    • Use the cash for whatever you need: Once you secure a VA debt consolidation loan, the cash can be used for various purposes, such as:
      • Investing in home renovations or upgrades
      • Paying down high-interest debt
      • Covering emergency expenses
      • Saving for future needs in an emergency fund

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    Drawbacks of VA Debt Consolidation Loans

    While VA debt consolidation loans offer many benefits, there are some potential drawbacks to consider before you decide if it’s the right choice for you:

    • Higher interest rates: If your financial situation has worsened since your original mortgage – such as a lower credit score – your interest rate may be higher compared to your initial mortgage, which could increase your monthly payments.
    • VA funding fee: Unless you are exempt, you’ll need to pay the VA funding fee, which is:
      • 2.15% of the loan for first-time use
      • 3.3% of the loan amount for subsequent uses
    • Additional closing costs: Aside from the funding fee, you’ll also need to budget for closing costs like appraisal fees and pest inspections, which can quickly add up.

    Understanding these potential drawbacks can help you make an informed decision about whether a VA debt consolidation loan is the best option for your financial needs.

    When to Use a VA Debt Consolidation Loan

    There are several situations where a VA debt consolidation loan can be particularly helpful:

    • Falling behind on monthly bills: If you’re struggling to keep up with payments, consolidating your outstanding debt can simplify your finances and improve your overall financial health. By combining multiple payments into one, you may also reduce interest charges and make repayment more manageable.
    • Carrying high-interest debt: When you’re only making minimum payments on high-interest debt like credit cards, the interest can pile up quickly. A VA debt consolidation loan can help you pay off these debts more efficiently, saving you money in the long run.
    • Planning home improvements: If you’ve been dreaming of updating your home, adding an addition, or renovating a space, a VA debt consolidation loan lets you tap into your home’s equity to fund these projects.
    • Funding essential home repairs: Whether it’s a new roof, heating system, or driveway, a VA debt consolidation loan can provide the funds you need to make crucial repairs without causing financial strain.

    How to Apply for a VA Debt Consolidation Loan

    A man in a blue collared shirt signs a contract while one woman holds his arm and another woman points to where he should sign.

    Applying for a VA loan is a process that can often be completed within 30 days. When you are looking for a VA debt consolidation loan, you can apply online or work with a loan officer from Griffin Funding to get the loan processed. You may need to provide tax returns, your COE, or W2s for proof of income and eligibility.

    Once you submit an application and supply us with the necessary documentation, we will let you know if any further information is needed. Once you sign our completed loan documents, these are reviewed by a loan officer for you to receive funding. In most cases, we can complete your VA cash-out refinance in 30 days or less.

    Explore Debt Consolidation Loans for Veterans

    It’s easy to tap into the equity of your home when you apply for a VA debt consolidation loan through Griffin Funding. We make the process smooth and offer competitive loan terms and excellent customer service. Whether you want to pay down your debt or you are looking to update your home, the cash you secure from your debt management VA loan can be used for anything.

    Reach out today to learn more about the VA cash-out refinance application process, VA loan rates, and the loan terms you qualify for. We also encourage you to check out the other financing products we offer, such as VA purchase loans, VA streamline refinance loans, and home equity loans. Reach out today to determine which loan type is right for you.

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    Frequently Asked Questions

    Does the VA offer debt consolidation loans?

    Yes, you can get a VA cash-out refinance loan for debt consolidation. With a VA cash-out refinance loan, you can leverage the equity in your home to receive cash while replacing your existing mortgage with a new one.

    Can the VA help with my debt?

    One of the most common VA debt management tools is the VA cash-out refinance loan. Since this loan type provides borrowers with cash while offering beneficial loan terms, it can be a great tool for veterans and service members who find themselves in debt.

    Is it hard to get approved for a VA debt consolidation loan?

    Overall, qualifying for a VA cash-out refinance is fairly straightforward relative to other types of loans. In order to qualify for a VA debt consolidation loan, you must meet basic VA service requirements. Beyond that, you must meet lender requirements, which can include meeting a minimum credit score and providing proof of income.

    Will getting a VA debt consolidation loan hurt my credit score?

    Applying for a VA debt consolidation loan may initially cause a temporary dip in your credit score due to the lender’s hard inquiry during the application process. This is a standard part of any loan application and typically has a minor impact. 

    However, over time, consolidating your debts and making on-time payments can improve your credit score. Additionally, combining multiple payments into one simplifies your payment schedule, making it easier to stay on top of your finances. 

    As long as you manage the loan responsibly and avoid taking on additional high-interest debt, the long-term benefits of a VA debt consolidation loan can outweigh the initial credit score dip.

    Is it a good idea to get a VA debt consolidation loan?

    A VA debt consolidation loan can be a good idea depending on your financial situation and goals. Consolidation loans for veterans are especially beneficial if you want to lower high-interest debt, streamline payments, or access cash for home improvements or emergencies. 

    However, it’s important to consider the potential downsides, such as higher interest rates if your credit has worsened, VA funding fees, and closing costs. If used wisely, a VA debt consolidation loan can be a powerful tool to regain control of your finances.

    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.