Debt can be overwhelming and paralyzing. It might seem like an unsurmountable obstacle to overcome, preventing you from pursuing your financial goals or getting some peace of mind.
And the truth is, debt affects millions of Americans. According to the Federal Reserve Bank of New York, total household debt increased by $32 billion in the fourth quarter of 2018. Overall household debt is now 21.4% above the post-financial-crisis trough reached during the second quarter of 2013.
When it comes to debt, it can be hard to know where to start. Meeting with a financial planner means you have an expert on your side; they’re able to provide you with a big-picture perspective on your overall financial situation, assist you in outlining goals and timelines, and provide astute financial advice. With a financial planner, you won’t be tackling debt alone.
How A Financial Planner Can Help
Managing debt plays into overall financial planning strategy – and a financial planner can clarify what options you have for moving forward, including:
- Organizing debt – A financial planner can help you organize debt and make a plan to eliminate it, using tools such as debt consolidation, refinancing, debt restructuring, or other debt management vehicles.
- Prioritizing based on the type of debt – There are two different types of debt – secured and unsecured. A financial planner can help you determine which is best to focus on first. For example, secured debt is attached to an asset (known as collateral) like a house or car. These debts are usually accompanied by lower interest rates. In contrast, an unsecured debt, like a personal or business loan, often presents a higher interest rate. You may want to repay one type before the other according to individual life circumstances.
- Balancing with other goals – Many individuals have other important accumulation goals outside of eliminating debt. A financial planner could assist in determining how to balance debt repayment with asset accumulation for retirement, college funding, and other savings goals.
- Optimizing income – A financial planner can help create a personalized budget to best allocate income to debt repayment, according to your unique lifestyle, goals and circumstances.
- Setting attainable goals and staying accountable – Meeting with a financial planner can help you get a wide-angle view of your finances. He or she can help you set milestones to track your progress, and in some cases, serve as an accountability partner to stay motivated to meet these milestones.
The ultimate purpose of financial planning is to empower individuals to make the best financial decisions for their individual life circumstances and priorities. Financial planners can provide valuable recommendations on how to reduce debt, budget effectively, and prevent debt from accumulating.