Making Better Financial Decisions

Three Ways a Financial Planner Can Help You with Debt

by Glen Hawkins

Consulting a financial planner is one of the most effective steps you can take toward managing and paying off your debt. A professional can give you short-term relief by reorganizing your debt, help you set up a plan to pay it off long term, and address any spending and budgeting issues you may have in the meantime.

1. Short-Term Relief

Depending on where your debt is—e.g. credit cards, student loans, mortgages—your financial planner will be able to help you in the short term by helping you organize your debt so it can be paid off easier. They can also help you look for options that would give you lower interest rates, which would decrease how much you have to pay over time.

For example, if much of your debt is in credit cards, which traditionally have high-interest rates, you may be able to take out a loan to consolidate your debt. There are a few different ways this can happen:

  • An unsecured personal loan. This will likely have lower interest rates than your credit cards, but may not be your best choice depending on what's available to you.
  • A secured loan. Securing your loan with something like a car title can get you a lower interest rate because you're offering something as collateral.
  • A home equity loan. This type of loan uses the equity of your home as collateral. If you're in a good position to do this, your interest rates could be much lower than your credit cards.

By restructuring and consolidating your debt, your financial planner can help you get more immediate relief, which paves the way toward long-term payment plans.

2. Long-Term Planning

While immediate solutions can give you some breathing room, it's also important to have a long-term plan to get you out of debt. There are a few different strategies your planner may recommend. For example, when it comes to paying off any kind of debt, it's advantageous to focus on the debt with the highest interest first. After restructuring your debt, you may have a little more money each month to put toward making payments, which means you can start tackling your higher-interest debt faster.

Your planner can help you establish a solid monthly budget to help you do this. They'll need to know your sources of income, how much you make, and all of your expenses, but creating a solid budget will ensure you have what you need every month without risking missing payments.

Depending on your situation, you can also set long-term goals like building up an emergency fund or your savings account. This might not sound feasible if you have a lot of debt, but some debt doesn't need to be paid off as fast as possible. Mortgages, for example, tend to have such low-interest rates that it's worth it to make only your standard payment each month and instead use your extra money elsewhere. Your planner can help you decide what to focus on, in what order, and what comes next.

3. Addressing Spending Habits

Taking care of debt is a long process, and it will only work as long as you follow the advice of your financial planner. For example, while credit card debt can be consolidated, this will only work if your credit cards aren't used after they're paid off; otherwise, you'll simply be in even more debt.

Part of managing your spending will come from your budget, but your planner can also make recommendations for your needs going forward. If you had multiple credit cards with balances, your planner may recommend closing all but one of your accounts, and to keep your remaining credit card only for emergencies.

This is a good time to be honest with your planner. For example, if you've struggled with carrying high balances on credit cards due to frequent purchases, they can help you plan around this issue. It can be tough to hold yourself to a new budget and spending plan, but in the long run, this will help you get out of debt faster, pay less, and encourage more responsible spending.

For more information, contact financial planning services.