Credit card debts, personal debts, and student loans are the most common types of debt.
If you are feeling overwhelmed by your current financial situation, it’s best to consult with a financial advisor to avoid making any desperate mistakes.
According to Statista.com, in the year 2022 35% of Americans worked with a Financial Advisor to get help with their dire financial circumstances.
In case you are too wondering how Financial Advisors can help with your debt and how much will it cost for you to consult with them, then make sure to read this article till the end.
Key Takeaways
- You should start paying the loans with a high interest rate first, followed by others.
- Your financial advisor’s main responsibility is to take a comprehensive approach to develop a long-term strategy to pay off your debt.
- A financial adviser’s expertise and experience can help you get financial independence.
What Do Financial Advisors Do?
Financial advisors help clients in managing their money by creating a comprehensive plan. These plans may include a wide range of situations, such as:
- Planning an investment and retirement strategy.
- Managing your tax liability.
- Helping you plan and build an investment strategy.
- Help you with your household budget.
- Coming up with a strategy for your child’s education, etc.
How Financial Advisors Can Help With Your Debt?
Plan For a Budget
Debt and budget management is a vital aspect of how a financial adviser may assist you in planning for a prosperous future for your financials.
A person who is in massive debt that they cannot pay is like someone who is bleeding from an open cut with a huge amount of bleeding that is threatening their life; you have to stop the bleeding first to start treating the wound.
A trustworthy and successful financial advisor can help you to understand your cash flow and find the defects and problems in the present and future.
To ensure that your adviser has a complete picture, the client should bring all essential documents to the appointment.
These documents must include anything from bank statements and credit card debts to tax returns from previous years or anything else that might have an effect on your financial well-being.
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Analyze Your Debts
There is not just one type of debt; there are several sorts of debt.
Some debts are extremely boring, like low interest and tax-deductible mortgages, and some debts are poisonous to your finances, like high-interest rates and penalty-creating credit card debts.
After reviewing the client’s debt, the financial adviser may start prioritizing the client’s debt repayment approach.
The most costly and overdue accounts are the first ones that you will pay off, and you will pay the less expensive ones later on.
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Create a Long-Term Plan
The whole point of meeting and working with a financial advisor isn’t always about assisting the customer in paying off all of their debt as rapidly as feasible.
While debt reduction is frequently the primary emphasis, other problems often surface once you stop the biggest bleeding on the wound.
While not everyone’s circumstance is the same, your financial advisor’s main responsibility is to take a comprehensive approach to develop a long-term strategy tailored to each client’s individual needs.
You might need life insurance to help your dependents in case you die before them.
In this case, your financial advisor will likely recommend you to pay off a few high-interest debts first, but then stop paying your debts and get a comprehensive life insurance policy.
Then he might go for having a retirement account once most of your debt is out of the way. 1
Is It a Good Idea To Hire a Financial Advisor?
Honestly, having a financial advisor is not a bad idea.
Having an expert to help you manage your money, investments, etc., every month can be very beneficial. But not everyone can hire them as it can be an expensive option.
But when should you hire a financial advisor? When can you need one? You may want to hire one when you have had a significant event in your life, such as marriage, divorce, childbirth, etc.
You might seek their help when you do not know what to do with the loads of money that you are making, or how to invest it, or if you are unable to manage your day-to-day expenses, or are going towards debt, etc.
But before you decide to seek a financial advisor, you should see if you can even afford to hire them. 2
How Much Does It Cost To Hire a Financial Advisor?
Now the cost to hire a financial advisor depends on the financial advisor, services he/she offers, company, state, etc.
Now the exact cost to hire a financial advisor may vary, but here are some costs that you can expect to bear:
- Some financial advisors charge on the basis of per hour, and you expect to pay several hundred dollars per hour. So make sure to find an advisor that you can afford.
- If you are hiring an advisor to help you with your investments, then they may charge a percentage of your investments. This could be 0.25-1% a year or, sometimes, even more.
- Financial advisors can also charge you a flat rate or different rates in a package, and you can expect to pay several thousands of dollars each year based on what services you choose. 3
Financial Advisor Vs. Credit Counselor For Debt
When seeking help for debt repayment, you may get confused about whether you should choose a financial advisor or a credit counselor.
So if you choose to work with a nonprofit credit counselor, chances are that you will get the advice for free.
In contrast, you will have to pay a fee to the financial advisor for their advice and help.
Credit Counselors can only offer advice to you upto a limit, as their main area is to give debt-related advice.
However, a financial counselor can advise you on other matters such as retirement, taxes, insurance, etc. too.
One advantage that Credit Counselors have over financial advisors is that they are able to negotiate with your creditors on your behalf.
So if you are thinking about going for debt consolidation or settlement, then a credit counselor can get into the negotiation and help you immensely.
Which of the two you should choose depends on your budget and needs.
A financial advisor may be a good choice for getting advice and help with a wide range of financial topics.
In contrast, Credit Counselors may be better if you need help with just getting out of debt.
The Verdict
Americans are drowning in debt. The total amount of consumer debt in the United States is around $14 trillion.
It is understandable that every household has some sort of debt, and they want to get rid of those unnecessary debts, but the majority of them lost so much control of their finances that they do not know how to get rid of them, which then results in actions to get more debt.
Working with a successful financial adviser to help you create a new path to manage your debt and create a new financial plan for your future is a fantastic method to get your debt under control.
A financial adviser’s expertise and experience will assist you in determining the best path to financial independence.
FAQ
Can a financial advisor help me in getting out of debt?
Yes, financial advisors can help you in dealing with debt.
They can help you with coming up with a loan repayment plan, can guide you on how you can make more money and can help you in creating a budget which can all help you to get out of debt eventually. 4
Can a financial advisor help me with my investments?
Yes, if you are earning a lot of money and what to make the most of it by investing, then financial advisors can help you with this too.
They can help you by understanding the stock market, and how you can start investing and gain returns on it.
What are red flags in a financial advisor?
Here are some red flags that can help you avoid choosing the wrong financial advisor:
- They brag a lot.
- They are focused a bit too much on short-term gains.
- They are trying to force down variable insurance products or annuities on you.
- They are unresponsive or unavailable or take way too much time to respond.
- They tell you that they can time or beat the market. 5
Amit Gupta is the founder of National Planning Cycles, a company that helps startups, individuals, and small businesses with their financial planning. He has a vast amount of experience in the finance sector, having managed Google Play accounts for some of the world’s most successful unicorns. Amit is an expert in his field, and he uses his knowledge to help others achieve their individual goals.
ARTICLE SOURCES
The National Planning Cycles is committed to producing high-quality content that follows industry standards. We do this by using primary sources, such as white papers and government data alongside original reporting from reputable publishers that were appropriate for the accuracy of information while still being unbiased. We have an editorial policy that includes verifiable facts with due credit given where applicable.
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