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A Guide to Financial Advisor Debt Counseling

Couple in debt counseling session
Couple in debt counseling session

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

Man cuts a credit card with a pair of scissors
Man cuts a credit card with a pair of scissors

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

Debt free dartboard
Debt free dartboard

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 in your local area. It takes just a few minutes to get your personalized advisor recommendations online. If you’re ready, 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 a fiduciary or not. Fiduciaries are held to a “best interest” standard when offering financial advice.

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