How Financial Advisors Can Help With Debt

Financial advisers can be of great help in controlling debt. They are experts at helping their clients prepare their finances for today and for the future. They can provide several services, such as investment management, tax return preparation and estate planning.

Planning a budget

Manager debt is a key part of how a financial advisor can help you plan for a healthy financial future. A person overwhelmed with debt is like a person bleeding from an open wound: the first step is to stop the bleeding. A trusted advisor can map a client cash flow and identify existing and potential problem areas.

The client should bring all relevant documents to the meeting to ensure that your advisor gets the full picture. This includes bank statements, credit card bills, installment loan statements, pay stubs, tax returns in recent years and any other element that may have an impact on your financial situation.

Some people may feel that it is intrusive and hurtful that someone they just met criticizes their past spending habits and financial decisions. In order for the meeting to be productive, a client must recognize that he or she may be faced with hard truths.

Once the client clears this hurdle, the financial advisor can write a new balanced budget that covers the essentials without taking on more debt. This usually involves cutting back on all unnecessary spending, so that any excess funds are available to pay off existing debt.

Debt analysis and restructuring

There are many types of debt. Some are relatively benign, such as mortgages, with their low interest rates and full tax deductibility, while others are downright toxic, like high interest credit cards and offender accounts generating penalty fees in addition to exorbitant interest.

After analyzing the debt held by the client, the financial advisor can begin to prioritize the client’s debt repayment strategy. The most expensive and overdue accounts go at the top, while the smallest go at the bottom.

For example, if a client has $ 600 per month to pay off an existing debt in the new budget, most of it should be spent paying off the debt with the most additional costs. It is also important to continue to make minimum payments on low interest rate accounts so that they do not revert to delinquent status and start accumulating penalties.

The financial advisor also examines the options for restructuring the debt into more advantageous options. For example, a homeowner with equity in their property may be able to take out a second mortgage and use that money to pay off three credit cards at once. The lower interest rate on the second mortgage would allow the homeowner to pay off a portion of the new principal each month instead of just tracking interest payments. Be prepared to handle communications and outreach yourself. Most financial advisers simply advise their clients what to do, leaving the work to each person. ask for debt relief. Most often, customers are looking for a debt relief or settlement company to manage their debts.

Another advantage of controlling debt levels is that the customer credit rating suffers each month that they have high balance or delinquent accounts. As the new budget comes into effect, the accounts become current and the balances gradually decrease. Their credit score increases as a result, which opens the door to renegotiated terms with creditors (at lower interest rates) and may even reduce seemingly unrelated items like insurance premiums.

The goal is not always to pay off the debt as quickly as possible. The financial advisor will help determine priorities.

Create a long-term plan

The goal of meeting with a financial advisor is not necessarily to help the client pay off all of their debt as quickly as possible. While the initial goal is debt reduction, there are often other considerations that arise once the immediate fires are extinguished. While every situation is different, it is the job of the financial advisor to take a holistic view to establish a long term plan tailored to the specific needs of each client.

For example, a person with dependents may need life insurance to support them in the event of premature death. The financial advisor may recommend paying off a few high interest accounts first and foremost, then slowing down the debt payments to start a solid life insurance policy. Your next step may be to open a retirement savings account after a few more debts are fully paid off.

The client should leave the meeting with a written plan that explicitly states the recommended course of action. Ideally, the financial advisor should provide milestones to check and red flags to watch out for so the client can check their progress and quickly spot any potential missteps.

How to find a good advisor

The decision to hire a financial advisor is not a decision to be taken lightly. Make sure the person is certified to give financial advice. The best bet is to look for a Certified financial planner (CFP). A Chartered financial advisor (ChFC) have less education, but they are also well versed in personal finance and insurance.

Find an advisor who is an active member of the National Association of Personal Financial Advisors (NAPFA) is also good practice. This indicates that he is a paid adviser, meaning there is no bribe of any kind that could bias his advice.

Your financial advisor should also be a trustee. This means that they are obligated to act in your best interests at all times. A person can be a financial professional and know all about money, but if they are not a fiduciary, you will have less protection on the advice you receive.

It might seem like a minor detail, but it could be the difference between getting advice to pay off a 25% interest credit card or starting a brokerage account at $ 200 per month. The latter may technically not be an unsuitable and therefore not bogus product, but a trustee would in all likelihood recommend paying off high interest debt before making new investments.

Refine your list of local counselors by asking for referrals from around you. Start by talking to friends and family who have received help with paying off their debts in the past. A tax preparer is sure to know several financial advisers as well.

How advisors are paid

The immediate goal being debt management, the compensation structure for a financial advisor should generally be an hourly rate. Commission advisers depend on the sale of insurance policies, investments, etc. which creates a clear conflict of interest. Percentage fees are less of a problem than commissions this way. Advisors using this system are typically paid 1% per annum of the asset portfolio. It might make sense for a millionaire looking for help managing their wealth, but it means slim choices for the advisor helping someone drowning in debt.

The bottom line

Americans are burdened with debt. Consumer debt in America is approximately $ 14 trillion. Many people want to get out of debt, but their finances are so out of control that they don’t know how to go about it, making decisions that often lead to more debt.

Hiring a financial advisor to help you write a debt reduction strategy and a financial plan for the future is a hugely beneficial way to get your debt under control. Their knowledge and experience will help you find the right path to financial freedom.

About Mike Stevenson

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