NYT : A Way Out of Debt by Way of Iraq

A Way Out of Debt by Way of Iraq

By JOHN LELAND | September 3, 2007

Nick Sloan was $68,021.35 in debt earlier this year when he decided he needed a change. Mr. Sloan, 26, is a captain in the Air Force, and was stationed in Colorado Springs. Looking at his financial life, he saw only a series of bad decisions.

So he made what he calls a “radical” break: he volunteered to go to Iraq. In May he arrived for duty in Baghdad.

“I came to the realization that I was so far over my head, I had to do something drastic to increase my cash flow,” Captain Sloan said by telephone from the Green Zone, where he now receives extra pay and has minimal living expenses. “Iraq did that.”

In a nation swimming in debt — prime, subprime, adjustable, student, payday — debt reduction is coming to resemble dieting, a province of gimmicks, good sense, talk radio and endlessly resourceful scheming. Though there is as yet no South Beach Debt-Loss Plan, for Captain Sloan, there is Iraq.

“I hate to make it seem like I’m here just for money, because it’s not true,” he said. “There’s many worthy things about being here. But if I can use this to my advantage, I definitely should.”

Since arriving in Baghdad, he has gotten his debt below $4,000. He monitors his finances on the Internet, and started a blog (http://sloaninvestments.blogspot.com/) to help his peers avoid his mistakes.

“I’ve met people who’ve gone on to one or more tours just to get out of debt, with jobs much more dangerous than mine,” Captain Sloan said. “One soldier in Afghanistan said, ‘That’s why I’m here, to get out of debt.’ ”

Financial counselors who work with military families say that this solution — volunteering for deployment to get out of debt — is rare, but that debt is a problem in the armed services, as it is in the country at large. In 2005, military charities for all branches of service provided $87,332,758 in emergency no-interest loans or grants to 100,808 service members in financial distress.

“The military reflects the society from which the people come, so right now that means carrying a lot of debt,” said Adm. Steve Abbot, who is retired from the Navy, the president of the Navy-Marine Corps Relief Society, a military charity organization.

More commonly, Admiral Abbot said, deployment to war adds to families’ financial pressures.

A Defense Department survey of active-duty service members found that in 2006, 11 percent reported failing to make a minimum payment on a credit card or military credit account in the preceding year; 11 percent said they had been put under pressure to pay bills by a store, creditor or bill collector; and 7 percent had bounced two or more checks. (The percentages were all down from previous years.) In response, payday lenders concentrate around military bases, the researchers found.

Last year Congress passed legislation prohibiting payday lenders from charging service members more than 36 percent — effectively ending payday loans to military personnel — but the measure is not scheduled to take effect until October.

Captain Sloan’s debts began at the Air Force Academy, with a low-interest loan of $25,000.

“It was this awesome loan at 1 percent interest, and I just squandered it,” he said.

Captain Sloan borrowed another $35,000 last year to buy a 2005 Nissan 350Z, bringing his debt above $68,000. He was using one credit card to pay off another and considering a payday loan to meet his regular expenses.

“When I look back, I feel somewhat ashamed that I got myself in this position,” he said. “But at the same time it was necessary for me to learn to manage my finances. When you can’t pay your monthly bills, you need to make some changes.”

Like many of his peers, Captain Sloan entered the service with little financial knowledge. His father, who died when he was young, supported the family on a disability pension from the Army. His mother, Linda, said she had done little to teach her two sons about money.

“My training in finances was very poor,” she said. “I didn’t expect my sons to make better decisions, without finding out on their own. My training was, you don’t buy things you can’t pay for. But we’re trained by the media that you have to have things and you’re owed those things.”

Captain Sloan said he kept his debts hidden from most of his friends and relatives. His mother, who opposes the war, said she did not try to dissuade him.

“I think the defining moment for me was when he called and said: ‘I want you to know I’ve taken out life insurance. You have $100,000 if something should happen to me,’ ” she said. “It left such a sour feeling in me.”

Captain Sloan said the toughest sell was his fiancée.

“She took decision the hardest of anyone,” he said. “Initially she was against it. I think I won her over eventually. It was a matter of looking at the numbers. We could start our marriage in debt, or I could do this. The numbers were very telling. Drastic measures are required.”

In the Green Zone, where he works in intelligence, he has few opportunities to spend money.

All his income is tax-free under the Combat Zone Tax Exclusion and he gets an extra $225 a month imminent danger pay and $100 “safe” pay to improve his living conditions. “The real benefit is that it’s tax-free money,” he said. “I really don’t feel in imminent danger on a day-to-day basis, but there have been times my heart did skip a beat or two.”

Apart from an occasional haircut, or dried fruit, he said, “every paycheck I get goes straight toward my debt.” His full monthly pay from the military, including hazardous duty bonuses, is $6,031.74. He pays Social Security and Medicare, leaving a take home amount of $5,695.76 a month. He makes $100 a month from renting his house in Colorado Springs, after paying for the mortgage. He also sold things and simplified his life. He eats at the chow hall rather than Pizza Hut and uses a Sony Reader to scan free books on the Internet.

But even in the relative safety of the Green Zone, Captain Sloan said, he sees his fellow service members taking unnecessary risks — by not saving their combat pay.

“I see that a lot from guys here, especially the younger guys,” he said. “They’re not afraid to spend their money. I do my best to tell them: ‘You’re risking life for this money. It should go to something better than a new computer or junk.’ Some listen, some don’t. They don’t want to change. They’re used to buying what they want.”

One young airman told him: “My wife is already letting me buy a new Nissan Titan and a 60-inch TV when I get home. Now, I just have to decide between a hot tub or Jet Skis.”

Captain Sloan’s first question was, “Have you thought about maybe putting it into a retirement account?”

In his case, he said, he plans to leave the military in May 2008 with $50,000 to start a real estate business. “I’ll do whatever my country asks of me, but if there’s a way to benefit my life, I should definitely take it,” he said.