In the United
States, household debt amounted to almost 77% of the country's gross domestic
product (GDP) in the third quarter of 2022.
This amount
represents a decrease in the debt-to-GDP ratio in recent years, a trend that
experts consider to be due to the country's steady GDP growth.
Such figures also
suggest a gradual improvement in how consumers manage their debt. One possible
factor for this improvement is the assistance of financial advisors.
How can a
financial advisor help if you're currently having difficulty managing your
debt? Aside from debt management, what other services do financial advisors
provide?
This article
explains how financial advisors can help you manage your debt and lessen your
financial burden. It also discusses the various services financial advisors
offer that can cater to your needs.
Debt is often a
significant financial challenge for many people. Still, only some have the
capacity or management skills to repay debt. And when you default on your debt,
like payday loans, you can get exposed to higher interest, credit score hits,
and other risks listed by Debthammer.
Consulting a
financial advisor can help you develop strategies to ease your financial burden
caused by debt. Keep reading to learn how these professionals can assist you in
managing your debt.
In What Ways Can Financial Advisors Help Manage Your Debt?
Sometimes, you
take on debt but can't pay it back or have difficulties doing so. If you're
experiencing such struggles, consider asking a financial advisor for help.
Financial
advisors are well-versed in financial matters like investments, tax, and estate
planning and can help create a plan for controlling your debt.
When looking for
a financial advisor, remember to choose one with reputable credentials, like a
certified financial planner (CFP). This way, you know you're getting the
correct financial advice from a professional.
Advisors with CFP
certification have met rigorous education, training, and ethical standards to
help their clients have a more secure future.
One of the ways a
financial advisor can help you is by identifying which debt you need to pay off
first. For example, the advisor can recommend paying off the bills with the
highest interest rates first and then working your way down the list.
Financial
advisors can also assist you in planning your budget. First, they map out your
cash flow by checking relevant documents like your bank statements, credit card
bills, loan statements, tax returns, and anything else that can affect your
financial situation.
Once the advisor
identifies the problem area, they can draft a budget covering the essential
expenses without adding more debt. A skilled advisor should be able to create a
budget plan that makes it easier to pay off debt.
Financial
advisors can also help analyze and restructure your debt, especially if you're
overwhelmed with different debt types. For instance, you may have low-interest
debt like mortgages or high-interest ones like payday loans and credit card
bills.
Your advisor can
help you navigate these debts and identify which needs immediate repayments,
like delinquent accounts and high-interest loans.
Meanwhile, debt
with moderate- to low-interest rates can be at the bottom of your list. But
ensure you can still make minimum payments so that such debt doesn't become
delinquent.
What Services Can Financial Advisors Provide?
Financial
advisors can do more than just help you settle your debt. They are also
responsible for executing market trades on behalf of their clients. Advisors
use their knowledge, skills, and expertise to create tailor-fitted financial
plans to help achieve their clients' financial goals.
Other services
financial advisors can deliver include the following:
● Investment advice: Advisors can
provide recommendations and develop an investing strategy that fits your goals,
investing style, and risk tolerance.
● Budgeting: Financial
advisors can provide strategies and tips to create a budget that meets your
short- and long-term financial goals.
● Debt management: These
professionals can create strategies to help you pay down your debt and avoid
debt in the future.
● College planning: Financial
advisors can help you create a budgeting strategy that includes paying for
higher education.
● Retirement planning: An advisor can
create a savings plan that focuses on setting aside a fund for your retirement
goals.
● Estate planning: Financial
advisors can assist you in identifying organizations or individuals you want to
receive all or part of what you own after your death.
● Insurance and long-term healthcare: These
professionals can provide long-term healthcare solutions and insurance options
that fit your budget and needs.
● Tax planning: Some financial
advisors provide tax planning services that include the following:
○
Preparing tax returns
○
Maximizing tax deductions
○
Scheduling of tax-loss harvesting (reduction of
capital gains taxes from selling profitable investments)
○
Ensuring the best use of capital gains tax rates
○
Planning to minimize retirement taxes
Overall,
financial advisors are an excellent help for matters concerning your finances,
including debt management. If you need help settling loans and other
obligations, consider consulting a CFP-certified financial advisor for
professional assistance.
