4 Things to consider before hiring a financial advisor for debt

Financial advisors are not just investment advisors for the rich and powerful.

They are also capable of advising on other matters, including debt—which can be very beneficial to those who find themselves trapped in credit bind.

So, what do you need to consider when thinking about hiring a financial advisor to get out of debt, and how can they support you?

Read on to find out.

What a financial advisor for debt can and cannot do for you

Turning to a financial advisor for debt means being able to speak to a professional who can answer your questions and make practical suggestions for how to handle your debt.

With their support, you can take the first step toward managing and eliminating debt and improving your financial health.

Some things they can help with include:

• Preparing household budgets
• Offering suggestions for how to confront multiple debts
• Recommending debt relief programs in your area
• Settings short and long-term financial goals

What they cannot do for you:

• Because they are not legal professionals, they cannot represent you in court the way a debt relief attorney can.
• They cannot speak with creditor on your behalf because they are not settlement companies.

Keep in mind they can only advise. They cannot handle your finances for you.

3 things a debt management advisor can help you with

The 16th-century English philosopher Francis Bacon once said, “Knowledge is power.” Yet only 35% of Americans have a financial advisor to help them navigate the trials and tribulations of all things money.

Advisors are not in the business of delivering generic, meaningless advice. They play an active role in your journey, with functions such as:

1. Assessing your financial situation

Finding yourself in debt is not unusual. According to First Republic, fewer than 25% of households are debt-free.

The first thing a financial advisor to help with debt will do is assess your financial situation.

For example, John is drowning in debt and chooses to meet with a financial debt advisor. His advisor will begin by asking questions, requesting documentation (like bank statements), and taking stock of John’s income, expenses, debts, and associated interest rates.

2. Produce a debt repayment plan

Everyone’s debt is different. Maybe you’re one of the 35% of adults with month-to-month credit card debt. Or perhaps your mortgage has a variable interest rate and the current rate raises have blown a hole in your finances.

Regardless of what’s hurting your wallet, financial advisors to help with debt are there for you.

They’ll review your finances and produce a customized debt repayment plan based on your circumstances. It could include:

• Debt consolidation
• Refinancing
• Dealing with delinquent accounts
• Minimizing interest rate costs

3. Budgeting and expense management

Do all those numbers make your head spin? Are you a young person who has joined the 43% of Americans who are financially illiterate?

If you’re not comfortable with finances and feel as if you’re sinking in quicksand, your advisor is there to reach out a hand.

They can work with you to create budgets that align with your financial goals and help you handle debt repayment efficiently.

They can also show you how to reduce unnecessary spending and confront those bad habits that are holding you back.

Other functions of a financial advisor

Financial advisors are multi-faceted because they understand that everyone has their own money worries. They’re not just there to tell you to do this or do that. They’re there to give you confidence in managing your debts.

Some other things they can do to support you include:

Set financial goals—Your advisor can educate you on how to set financial goals and work with you to achieve them. It might be putting more money into your retirement account, saving for your children’s education, buying a house, or taking that dream holiday.

Provide financial education—Financial advisors to help with debt can do what the public education system doesn’t: enhance your understanding of various financial concepts, including credit scores, interest rates, and debt management to empower you.

Behavioral support—Dealing with debt is emotional. 70% of Americans say they are financially stressed in 2023. Advisors offer motivation, enthusiasm, and emotional support to guide your journey.

Investment advice—You may have some extra funds after making your repayments. Your advisor can help you go on the offense by guiding you on how to use your leftover funds to build wealth.

What should you look for in a debt advisor?

Can a financial advisor help with debt? Certainly, but they cannot make three go into two, or help people who refuse to be helped.

With that in mind, here’s what you should look for when searching for an advisor.

• Credentials and qualifications such as Accredited Financial Counselor (AFC) and Certified Financial Planner (CFP).
• Experience
• Track record
• Fees
• Fiduciary duty
• Communication style
• Compatibility

Be wary of anyone promising instant debt relief solutions. You don’t want to fall victim to a shady operator trying to exploit your distress.

Financial advisor vs. settlement services

Hiring a financial advisor can be a smart decision because they are experienced consultants with a breadth of knowledge.

But, remember, they are advisors only.

Households with countless delinquent accounts, crushing interest rates, and no way out may need to consider other or additional options.

For example, if, after a financial assessment, Sarah has a plan to escape her debts, but she falls victim to tech layoffs in 2023, she might be advised by a financial advisor to consult her lawyers or a debt settlement firm.

So, how does a debt settlement attorney or settlement company differ? Here’s a rundown of how these services differ:

• They can negotiate directly with your creditors.
• Attorneys can represent you in court and advice you on your rights.
• Your settlement company may be able to get a creditor to call off collection action.
• A bankruptcy attorney can initiate the bankruptcy process, allowing you to get unsustainable debt written off.

In all cases, attorneys and settlement companies have a narrow focus and can act in your name. On the other hand, a financial advisor can provide advice, support, and nothing more.

But they can also offer more holistic approaches by providing you with ongoing knowledge that applies to your personal entire financial situation.

Settlement services have their place, but they are designed for a specific purpose. A financial advisor is there to guide you throughout your entire financial journey.

If your debt situation has become unsustainable, going directly to a debt relief attorney may be the better option.

But if there’s still hope without resorting to mechanisms like debt consolidation, settlement, or bankruptcy, some one-to-ones with a financial advisor could set you on the path to a debt-free lifestyle.

A clean slate

Debt can often feel like the end of all things, but getting help can turn that around and be a fresh beginning for your family.

If you feel ready to write a new chapter, contact The National Foundation for Credit Counseling (NFCC) today for your next steps. You have nothing to lose but worry and stress.