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Ask Farnoosh: When Is It Worthwhile to Hire an Accountant?

Sid on Facebook asks: Farnoosh, whenever I think of hiring an accountant to help manage my family’s finances, I cringe at how much it might cost. Do you have any ballpark estimates as to how much such a service would be? Nothing complex, just someone to help us figure out a monthly bill and mortgage payments, savings, etc. Thanks!
 
Dear Sid,
 
A key to successful money management is recognizing when you need help – and acting on it. Whether it’s due to lack of time, interest, knowledge (or all three), it never hurts to invest in key resources – both on and offline – in exchange for specific financial advice and direction.
 
There are some free budgeting resources and I’d suggest you begin exploring those since your needs don’t seem to be too complicated. Online tools – such as Mint, BudgetSimple and Learnvest – can help with budgets, bills and savings goals. But if you decide you want more advanced assistance – and something more personal – you may want to hire a professional like an accountant or certified financial planner. This person can offer a catered financial roadmap based on your personal goals. A good accountant can give you a second opinion, identify your financial leaks and tell you whether you can really afford certain big-ticket items like a home or new car in the near-term. Bottom line, by hiring an accountant, you’re paying for an advisor who will invest time in learning about you, your goals, your financial challenges – and relay strategic advice to help you get the most out of your money.
 
If that’s worth it to you then you may be able to justify the cost. According to data from Accounting.org, a database of accounting professionals, it costs an average $25 to $50 an hour to enlist the help of an accountant strictly for basic bookkeeping. For more in-depth assistance, like tax preparation and investment planning, fees can range from $150 to $400 per hour depending on the complexity of your situation. You can minimize costs by working with someone on staff, as opposed to the firm’s manager or founder, and by coming to the meeting prepared and organized. For instance, have your specific short- and long-term goals written down, along with a list of all your monthly expenses and a log of other recurring costs for food, gas, travel, entertainment, and so on.
 
You can find a nearby professional based on task or area of expertise through the National Society of Accountants and the American Institute of CPA’s.
 
Ursula emails: I have a credit card that has a 24% interest rate with a balance of $2,892.37. I currently pay $80 a month. I have a student loan that has a 4% interest rate with a balance of $1,990.34. I currently pay $204.25 a month. Which do I pay off first? Do I pay off the one with the higher interest rate or the one with the higher monthly payment?
 
Hi Ursula,
 
What’s probably throwing you off is that the debt with the higher interest rate – your credit card – has a much lower monthly payment. It may seem insignificant compared with your $204 monthly student loan bill. My advice is to always be more aggressive with the debt carrying the higher interest rate because, mathematically, it’s the most expensive debt. By paying off your credit card faster, you can save much more in interest over the long run. In fact, at the rate you’re paying off your credit card, by the time you’re done, you’ll have paid roughly $2,300 in interest.
 
Further, when it comes to boosting your credit score, it’s far more effective to quickly pay off your “revolving” debt, such as credit-card balances, rather than student loans. Scoring models consider high card balances a very risky sign. In fact, 30% of your credit score is based on the amount of outstanding credit-card debt you have. A student loan, on the other hand, much like a car loan or mortgage, is categorized as “installment” debt and considered relatively fine to have by credit score calculators – assuming you pay all the statements on time.
 
Bottom line: Pay all your statements on time, and if you have extra money to throw at your debt, put it toward your credit-card balance. It will mean paying less interest over the long haul and a stronger credit score. By the way, it seems you’ll be finished paying off your student loans in less than a year. When that happens, use that extra $204 to pay down the rest of your card balance and you could be debt-free within 18 months!
 
Got a question for Farnoosh? You can reach her on Twitter @Farnoosh or email her at farnooshfinfit@yahoo.com.

Corrected on Nov. 28: This article misstated the amount the second reader would have paid in credit-card interest. It was $2,300, not $5,100, which included total payments and interest.

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