You feel like you’re drowning in debt. You don’t know how to get out of the situation. All you know is that your mental health is suffering and you’re craving financial security.
You’ve struggled long enough. Wouldn’t it be a relief to be able to take your stack of bills and say, “Here, you deal with it!” while you hand it off to someone else?
Good news: You can, if you’re willing to take a few steps out of your comfort zone.
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Why Use a Financial Advisor to Deal With Your Debt?
Financial advisors have completed years of specialized education and worked with many individuals, couples and families. They’ve seen and helped people work through all kinds of money challenges.
While a nonprofit credit counseling company can show you how to get your debt under control and may be the right choice if money is tight, the right type of financial advisor can do much more.
An advisor can be a better choice than credit counseling when:
- your situation is complicated
- you want a sophisticated analysis of your entire financial picture
- you want long-term help with all aspects of your money
- your assets are significant
- you can afford the advisor’s fees
Here’s what that process of getting an advisor’s help with debt management might look like.
Reduce Overwhelm
Some days you have bigger problems to worry about than your debt; other times you’re in denial. You might feel ashamed or have intrusive thoughts about how much you owe and what it means for your life. While a financial advisor is not a therapist, your first conversation with an advisor should leave you feeling more relaxed, confident and in control.
Get Organized
Do you have a spreadsheet showing the monthly payment, interest rate, minimum monthly payment, due date and projected payoff date for each of your debts? If not, an advisor can help you get organized using information from your monthly statements and credit reports.
Review the Big Picture
It can be hard to see the big picture of your own financial situation when you’re trying to get from one paycheck to the next. A financial advisor can take a fresh look at your situation without the emotional baggage. In fact, they’ll probably be excited to help you and enjoy puzzling through the different options to help you get out of debt.
Explain Repayment Strategies
There’s more than one way to get out of debt. People aren’t robots, so even if a certain strategy might be the least costly, it might not be the right option. To be effective, a financial strategy has to work for your personality and lifestyle.
Two repayment strategies your advisor might explain are the debt snowball and debt avalanche. While you might be able to read about those strategies on your own, an advisor can create financial models that show you the short and long-term impacts of each option. Also, they can tweak those models when you say, “What if we started with the snowball method, then switched to the avalanche?”
What if you don’t like either option? A financial advisor can help you understand the pros and cons of debt consolidation, as well as debt refinancing options such as personal loans, home equity loans and credit card balance transfers.
Protect Your Credit Score
Getting and staying out of debt can be far easier when you have good credit. However, some strategies for getting out of debt, such as personal bankruptcy and debt settlement, can obliterate your credit score.
In some circumstances, the damage might be worth it. But don’t take a bankruptcy attorney or debt settlement agent’s word for it.
Financial advisors are far less likely to recommend bankruptcy or debt settlement unless it’s truly in your best interest. If your advisor is a Certified Financial Planner (CFP), they’ll even be required to disclose any referral fees they might receive from other professionals they recommend to you.
Devise a Plan
After reviewing your options, answering your questions and making recommendations, your advisor will ask which debt-reduction choice sounds best to you. Then, they’ll draw up a map to get you to your destination.
They’ll need to know about your income, expenses, assets and liabilities. They’ll help you see what expenses you might be able to cut and decide how much to put toward debt repayment. They’ll help you decide whether it makes sense to save for retirement while paying down debt, or focus on the latter.
They may even suggest that you work with a credit counselor on a debt management plan first, then meet again when you’re in a stronger position to save and invest.
Help Execute Your Plan
It’s possible to pay a financial advisor a flat fee to devise a plan that you’ll execute on your own. This can be a good option if you’re self-disciplined and feel confident about working independently.
For many people, though, the accountability and encouragement that an advisor can provide are some of the biggest advantages of an ongoing relationship.
Recommend Trusted Experts
If you’re struggling with debt, you may also need help shaping up other areas of your finances. Financial advisors can often refer you to additional experts who can help.
For example, a Certified Public Accountant or Enrolled Agent could help you catch up on unfiled tax returns, review previous returns for errors and suggest strategies to lower your tax bill. A Certified Divorce Financial Analyst could help you manage issues like dividing property and other assets if you and your partner are splitting up.
Create Financial Security
It may take a few years, but there’s a good chance you’ll be able to get rid of your most oppressive debts with your advisor’s help. You’ll then have more money each month to put toward other goals, such as saving for retirement.
Your advisor will revise your plan as your circumstances change. If things get worse, they can help you limit the damage. If things get better, they can help you invest in ways that will make up, at least a little, for the years when you didn’t set money aside.
Ideally, your advisor will be a long-term partner. Through your work together, you could end up better off financially than you ever thought possible.
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