VICENZA, Italy -- Interested in saving money on credit card or loan payments? If you are still making payments on debt incurred prior to entering active duty service, you may be entitled to a significant interest rate reduction.

The Servicemembers Civil Relief Act (SCRA) sets a six percent interest rate limitation (including any fees or service charges) on debt a Soldier incurred, either individually or jointly with their spouse, before entering active duty. The interest rate cap applies to all debts incurred prior to entry into active-duty service, including student loans, credit cards, mortgages and car loans, and remains in effect for the duration of a service member's active-duty service.

Interest in excess of six percent must be forgiven, not just merely postponed, and the amount of the monthly payment must be reduced to reflect the lower interest rate. In appreciation of military service, some lenders may go above and beyond SCRA requirements, voluntarily reducing interest rates below six percent.

How much could you save? As an example, consider a $10,000 car loan at 18 percent interest payable over 60 months. The monthly payment on this loan would be $253.93. If the interest rate were reduced to six percent, the monthly payment on the loan would drop to $193.33, a savings of $60.60 per month and $3,636.00 over the course of the loan.

Another example: consider $75,000 in student loan debt payable over 20 years. The monthly payment on this loan at nine percent interest would be $674.79, but at six percent would be $537.32. This is a savings of $33,000 over the life of the loan.

The SCRA does provide some recourse for creditors. If a person's ability to pay an interest rate above six percent is not "materially affected" by one's service obligation, the creditor can seek a waiver of the limitation. However, few creditors are willing to incur the necessary legal expenses to secure court approval of the higher rate.

In order to take advantage of the interest rate reduction, service members must provide written notice to the creditor and a copy of the military orders bringing the Soldier on active duty. A letter containing the following information is sufficient: 1) account number, 2) start date of active-duty service, 3) a request for a reduction in interest rate pursuant to the SCRA, and 4) a copy of active-duty orders.

Service members may also pick up a template for the letter at the Vicenza Legal Assistance Office. Once the service member provides proper notice, his or her creditor must retroactively reduce the interest rate to six percent for the entire period of active service.

For more information, contact the Legal Assistance Office in Building 166 on Caserma Ederle at DSN 637-8834, comm. 0444-61-8834. (Legal Assistance Office)