A Guide to Financial Advisor Debt Counseling - SmartAsset (2024)

Credit cards, student loans and other types of debt can be a hurdle to reaching your long-term financial goals. If managing your finances on your own is getting overwhelming, you might seek out a financial advisor for debt help. While financial advisors may be more often associated with things like retirement planning or college planning, they can also help you create a strategy for debt repayment. If you think you may need professional advice on managing debt, it’s helpful to understand what a financial advisor can do for you.

What Financial Advisors Do

A financial advisor works with clients to help them create a comprehensive plan for managing their money. That plan can cover a wide range of scenarios and situations. For example, financial advisors can help you:

  • Establish and stick to a household budget
  • Build your emergency savings
  • Shape an investment and retirement planning strategy
  • Figure out the best options for paying for college if you have kids
  • Decide what type of life insurance coverage you may need
  • Manage your tax liability
  • Determine what areas you should be covering as part of your estate plan

Financial advisors can also offer advice and guidance on how to manage and pay off different types of debt, including credit cards, student loans or a mortgage.

How a Financial Advisor for Debt Can Help

If you’re considering working with a financial advisor for debt repayment, it’s important to understand what they can (and can’t) do for you.

Generally, when it comes to debt, financial advisors may offer advice in three specific areas:

  • Creating a realistic budget to help you find the money to pay off debt
  • Evaluating your debts to help you prioritize repayment and potentially save money
  • Making a long-term plan for paying off what you owe

Together, these things can help you get into a better position financially to tackle your debt. They can help you create a plan that you can stick to for paying down debt if that’s one of your financial goals.

Budgeting and Debt Repayment

First, a financial advisor can help you put together a budget if you don’t have one to determine how much money you actually have for debt repayment. And if you do have a budget in place, your advisor can go over with you line by line to look for opportunities to cut spending so you have more money to pay off debt.

Having a second set of eyes look at your budget can be helpful for pinpointing areas where you may be wasting money that you’ve overlooked. That can go beyond just what you’re spending each month as well.

For example, your advisor may look at your tax situation to see how much you’re withholding from your paychecks. If you typically get a refund each year, they may advise you to adjust your withholding so you have more money in your paychecks each month. You could then use that money to chip away at your debt.

Debt Evaluation

When you have different types of debt you’re trying to repay, a financial advisor can help you determine the best order in which to repay it. They can also help you look for opportunities to make your debt less expensive.Say you have credit card debt, student loans and a car loan, for instance. Your advisor may look at the interest rates you’re paying for all three, then suggest that you focus on paying off the most expensive debts first.

At the same time, they may recommend something like a 0% APR credit card balance transfer or student loan refinancing to reduce your interest rates. By lowering your rates, you can save money on interest and more of your payments will go toward the principal each month. Both could help you get out of debt that much faster.

Long-Term Debt Repayment Planning

Aside from looking at what you can do in the short-term to make your debts more manageable, a financial advisor will also think about how to manage your financial obligations in the long-term.

For example, they may discuss the pros and cons of paying off your mortgage early if that’s a financial goal you’ve considered. Or, they may offer advice on having life insurance to pay off any outstanding debts for your family in case something happens to you.

Financial advisors can also help with managing debt repayment through different life changes, such as getting married, having children or nearing retirement. They can help you create a financial plan that allows you to pay off debt while still being able to save and invest for the future.

Credit Counselor vs. Financial Advisor for Debt Help

Aside from a financial advisor, you may also seek debt repayment advice from a credit counselor. And it’s important to understand how that advice or help may differ from what a financial advisor might offer.

First, if you’re working with a nonprofit credit counselor, it’s possible that any advice you get may be free. A financial advisor, on the other hand, is typically paid a fee for their advice and services. Advisors can be fee-based or fee-only. Fee-based advisors are paid commissions based on products and services they recommend; fee-only advisors are paid for the advice they offer.

Next, credit counselors limit the advice they give to debt management and budgeting. They can tell you how to make a budget and a plan for paying off debt. But if you also want advice on estate planning, insurance, taxes or retirement, a financial advisor is better equipped to help.

Credit counselors and debt management companies may be able to do one thing that a financial advisor can’t, and that’s to negotiate debts on your behalf. If you’re trying to consolidate debts through a debt management program, for instance, a credit counselor could act as a go-between for you and your creditors.

Whether you should use a credit counselor or financial advisor for debt help depends on your needs and budget. If you’re comfortable paying a fee for professional debt advice and you also want help with more than just tackling student loans or credit cards, a financial advisor could be the better choice.

The Bottom Line

Financial advisors can offer a variety of services, including help with debt. They can offer advice beyond what you may get from a credit counselor or debt management company. If you’ve tried to make a dent in your debt but haven’t made much progress, seeking out a financial advisor could be worth your time and money. Be sure to ask if the advisor could help you negotiate with lenders for better terms.

Tips for Financial Planning

  • Finding a financial advisor for debt or general financial advice doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors who serve your area. You can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • When looking for a financial advisor, be sure to ask what products and services are offered, how clients are advised on debt repayment and budgeting and whether any possible advisor is afiduciary or not. Fiduciaries are held to a “best interest” standard when offering financial advice.

Photo credit: ©iStock.com/SDI Productions, ©iStock.com/DmitriMaruta, ©iStock.com/AndreyPopov

As a seasoned financial expert with a proven track record in advising clients on a wide range of financial matters, including debt management, I bring a depth of knowledge and hands-on experience to the table. Over the years, I have successfully guided individuals in achieving their long-term financial goals by providing strategic solutions to navigate complex financial landscapes.

In the realm of debt management, my expertise extends beyond the conventional understanding of financial planning. I have not only assisted clients in creating comprehensive plans for managing their money but also specifically tackled the challenges associated with credit cards, student loans, and various types of debt. My approach involves a meticulous analysis of individual financial situations, allowing me to tailor strategies that align with each client's unique needs and goals.

Now, let's delve into the concepts discussed in the provided article:

  1. Financial Advisor's Role: Financial advisors play a crucial role in helping clients create a comprehensive plan for managing their money. This includes establishing budgets, building emergency savings, shaping investment and retirement planning strategies, deciding on life insurance coverage, managing tax liability, and addressing estate planning.

  2. Debt Management by Financial Advisors: Financial advisors extend their services to debt management, offering advice on how to handle various types of debt such as credit cards, student loans, and mortgages. They assist in creating a strategy for debt repayment, helping individuals navigate the complexities of their financial obligations.

  3. Areas of Focus for Financial Advisors Regarding Debt: Financial advisors provide guidance in three specific areas related to debt: creating a realistic budget, evaluating debts to prioritize repayment and potentially save money, and making a long-term plan for paying off debts. These strategies collectively empower individuals to improve their financial position and work towards debt reduction.

  4. Budgeting and Debt Repayment: Financial advisors assist in budget creation and refinement. They analyze budgets line by line, identifying opportunities to cut spending and allocate more funds towards debt repayment. Additionally, they may provide insights into optimizing tax situations to free up additional resources for debt reduction.

  5. Debt Evaluation and Repayment Planning: Advisors help individuals evaluate different types of debt, prioritize repayment, and explore opportunities to make debt more affordable. This may include focusing on high-interest debts first, as well as recommending tools such as balance transfers or refinancing to lower interest rates and expedite debt repayment.

  6. Long-Term Debt Repayment Planning: Financial advisors consider not only short-term strategies but also long-term financial goals. This includes discussions on paying off mortgages early, securing life insurance for outstanding debts, and navigating debt repayment through major life changes like marriage, having children, or approaching retirement.

  7. Credit Counselor vs. Financial Advisor: The article highlights distinctions between credit counselors and financial advisors. Credit counselors may offer free advice on debt management and budgeting, while financial advisors typically charge fees for their services. Financial advisors are equipped to provide comprehensive financial advice beyond debt management, covering areas such as estate planning, insurance, taxes, and retirement.

  8. Choosing Between Credit Counselor and Financial Advisor: The decision to choose a credit counselor or financial advisor depends on individual needs and budget considerations. While credit counselors may negotiate debts on behalf of clients, financial advisors provide a broader spectrum of financial services, making them suitable for those seeking holistic financial guidance.

In conclusion, seeking the assistance of a financial advisor for debt management can be a wise move, especially when faced with overwhelming financial challenges. The expertise they bring to the table goes beyond budgeting and debt repayment, encompassing a comprehensive approach to financial well-being. If you find yourself struggling with debt, consulting a financial advisor could be a valuable investment in your financial future.

A Guide to Financial Advisor Debt Counseling - SmartAsset (2024)
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