Financial Advisors for People With Debt

Financial advisors can assist with creating a debt repayment plan, not just retirement and investments. They offer guidance for managing and paying down your debts effectively. Speaking with an advisor can be a good step toward developing a strategy for handling your debt.

headshot of Thomas J. Brock, CFA, CPA
  • Written By
    Thomas J. Brock, CFA®, CPA

    Thomas J. Brock, CFA®, CPA

    Investment, Corporate Finance and Accounting Professional

    Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.

    Read More
  • Edited By
    Savannah Pittle
    Headshot of Savannah Pittle, senior editor for Annuity.org

    Savannah Pittle

    Senior Financial Editor

    Savannah Pittle is an accomplished writer, editor and content marketer. She joined Annuity.org as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

    Read More
  • Financially Reviewed By
    Stephen Kates, CFP®
    Stephen Kates, CFP®

    Stephen Kates, CFP®

    Principal Financial Analyst for Annuity.org

    Stephen Kates, CFP® is a personal finance expert specializing in financial planning and education. He serves as the Principal Financial Analyst for Annuity.org, where he delves into industry trends to support consumers and financial advisors on wealth management, annuities, retirement planning, and investing.

    Read More
  • Updated: November 21, 2023
  • 8 min read time
  • This page features 3 Cited Research Articles

When most people hear the phrase “financial advisor,” they think of a professional that provides retirement planning and investment management services. However, full-service financial advisors also help their clients with debt management. Learn how they could help you with your debt and how to find an advisor that fits your specific debt management needs.

Key Takeaways

  • Financial advisors offer an array of services to help their clients manage money. The most prominent services include retirement planning and investment management, but debt management is another highly valued offering.
  • If you work with a financial advisor, make sure they are a fiduciary that holds the CFP® certification or another highly respected financial designation, such as the CFA charter or a CPA license.
  • Alternatives to debt financial advisors include credit counselors and debt relief companies. Both limit the advice they give to debt management and related budgeting matters. They do not provide comprehensive financial advisory services.

Can a Financial Advisor Help With Debt?

While financial advisors are usually associated with retirement planning, investment management and estate planning, they are also well-equipped to provide debt management guidance. A debt assistance financial advisor can help you get your arms around your finances, establish a budget and devise a strategy to manage and repay different types of debt. This includes revolving credit lines, auto loans, student loans and home mortgages.

Debt is one of the most common financial struggles people go through, but strategies to manage or alleviate debt are still misunderstood. Seeking a trusted advisor or company to support your debt-management journey can be the difference between success and failure.

Responsibilities of a Debt Assistance Financial Advisor

When it comes to debt assistance, a financial advisor can help you accomplish the following interrelated objectives:

  1. Create a sustainable budget to guide month-to-month spending and improve your financial position.
  2. Assess your debts to identify refinancing and consolidation opportunities and to prioritize your near-term payments.
  3. Formulate a long-term plan to systematically eliminate debts and bolster your savings potential.

Let’s Talk About Your Financial Goals.

Take our free 3-minute quiz to match with a financial advisor instantly. Recommendations tailored to your goals.

Creation of Budget

The first thing a debt financial advisor does is gain a comprehensive understanding of your finances and help you establish a personal budget. This entails identifying your sources of income and all relevant categories of spending, such as apartment rent, student loan payments, auto lease payments, groceries, gasoline and insurance premiums. Then, you develop monthly estimates for each line item – based on historical experience and anticipated changes.

These data points inform the construction of a comprehensive income statement that outlines anticipated cash inflows and outflows. Ideally, the net cash flow is positive, meaning you have excess money to put toward paying off your debts and/or saving for the future. That said, if the net cash flow is negative, a more rigorous analysis is likely needed to identify instances of overspending.

If you have never created a budget, this probably sounds very overwhelming. Fortunately, with some help, it is not nearly as complicated as it sounds. An experienced financial advisor can patiently walk you through every step and make sure nothing important is overlooked.

Ultimately, the goal of a budget is to gain visibility into your finances, promote a fiscally-disciplined mindset and provide a framework to manage your money on an ongoing basis.

In my experience, failing to budget is the leading cause of financial struggles, especially for younger individuals with minimal income. The process can seem overwhelming, but it’s not. It just requires some reflection, attention to detail and diligence. By implementing a budget, you will be much better positioned to live within your means, avoid problematic debt and save and invest for the future.

Assessment of Debts

The creation of a budget directly facilitates the second objective of a debt financial advisor — assessing your debts to identify near-term savings opportunities. The budget itself does not facilitate things. Rather, it’s the insight gleaned from creating the budget that drives the assessment.

Equipped with a comprehensive understanding of your debts and their terms, a financial advisor is well-positioned to pinpoint opportunities to save some money. Generally, this entails some combination of refinancing debt, consolidating debt and prioritizing payments.

Refinancing debt
Refers to the act of taking out a new loan to retire an existing loan. Generally, it makes sense when you can achieve a lower interest rate than the rate charged on the existing debt. It can be even more worthwhile when you can simultaneously structure a loan term that is shorter than or equal to the length of the existing loan, thereby locking in a lower total cost of borrowing. That said, any upfront fees for the new loan need to be factored into the evaluation.
Consolidating debt
Refers to the act of taking out a new loan to retire multiple existing loans, sometimes different types of loans. Generally, it makes sense when you can achieve a lower interest rate than the weighted average rate charged on existing debts. A lower rate, coupled with a relatively shorter term, is even more advantageous. However, as mentioned above, any upfront fees for the new loan need to be factored into the evaluation.
Prioritizing debt payments
Entails determining the optimal order in which to repay your obligations. Generally, the most economical approach is to sequentially target the most-to-least expensive debts. This entails methodically paying down the highest-rate debts as fast as possible, while ensuring you always make the minimum required payments on less expensive debts.
Did You Know?

A financial advisor will recommend actions you can take to minimize your debts, but they will not directly interact with your creditors. Negotiations and refinancing actions must be handled by you.

Formulation of Long-Term Debt Elimination Plan

Beyond implementing near-term savings measures, a financial advisor will help you formulate a longer-term strategy to eliminate your obligations and bolster your savings potential. For relatively short-term debt, such as auto loans and personal loans, this may entail a runway of two to five years. For longer-term debt, such as student loans and home mortgages, the runway could span multiple decades.

Multiple variables will come into play, including:

  • Your stage in life
  • Your primary financial objectives
  • The strength of your current expected cash flows
  • The opportunity cost of paying down debt (which is largely dependent on the prevailing interest rate environment)

A good financial advisor can help you holistically assess these variables and determine the optimal approach for retiring your debts.

Based on 2022 data from the U.S. Federal Reserve and the U.S. Census Bureau, the average American has over $95,000 of debt, including nearly $8,000 of credit card debt. With interest rates at a 15-year high, managing these obligations can be difficult. I advise individuals struggling with debt to consult with a financial advisor with debt management experience. Many reputable advisors offer fee-free initial consultations.

How To Find a Financial Advisor That Specializes in Debt Assistance

If you need help finding a financial advisor that specializes in debt assistance, a great place to start is the CFP Board, a non-profit organization that sets and enforces standards for the renowned Certified Financial Planner (CFP) certification.

What To Look For

All CFPs are held to the standard of fiduciary duty, which means they are legally and ethically committed to always act in your best interest. This standard of service and care differentiates CFPs from other, potentially, less trustworthy advisors.

The best advisors exhibit a high degree of professionalism and empathy, and they maintain transparent and competitive fee structures.

If you are looking to enlist an advisor for all your financial needs, make sure they quote a “fee-only arrangement” based on the percentage of assets under advisory. As a general rule-of-thumb, you can anticipate an advisory fee of 1% on assets of $1 million or less, but you should expect an increasingly favorable rate for larger investment portfolios.

If you are looking for advice focused solely on debt management, a flat-dollar fee or hourly rate is appropriate. Be leery of any commission-based arrangements.

What To Ask

As implied above, the first question to ask an advisor is if they hold the CFP® certification. Generally, a negative response is a reason to look elsewhere. However, if you like the advisor and they hold another robust certification, such as the CFA charter or a CPA license, determine if they act as a fiduciary. An affirmative response is essential.

Once you get comfortable with the advisor’s professional qualifications and fiduciary stance, inquire about the services offered. Delve into their budgeting and debt management expertise and flesh out how clients are advised on these matters. If possible, get your hands on some case studies. At a minimum, ask the advisor to verbally walk you through a real-life example or two.

Let’s Talk About Your Financial Goals.

Take our free 3-minute quiz to match with a financial advisor instantly. Recommendations tailored to your goals.

Alternatives to Financial Advisors for Debt Help

A financial advisor isn’t the only debt management resource at your disposal. Many people get debt assistance from credit counseling organizations and debt relief companies. Both can help you assess, consolidate and negotiate debts, but neither provide the comprehensive services offered by a financial advisor.

Credit counseling organizations are usually not-for-profit entities, while debt relief companies are profit-seeking businesses. The former tends to be strictly consultative, while the latter actively negotiates debts for its clients. The hands-on support sounds appealing, but some caution is warranted.

Reputable debt relief companies can help you achieve economic outcomes in a transparent manner, but the industry has its share of bad players. Therefore, it is critical to be comfortable with a debt relief company and the services it offers, before proceeding with an engagement. At a minimum, look for companies that have extensive business histories, stellar user reviews and clearly outlined costs and fees, which they levy in a results-based manner (not upfront).

When someone I know is contemplating whether to enlist the help of a debt relief company, I always stress the importance of scrutinizing the fee arrangement. I advise against ever paying a fee prior to receiving debt relief. Moreover, I encourage the debtholder to make sure the amount paid is a fair percentage of the economic benefit generated.

Ultimately, deciding whether to utilize a debt financial advisor or an alternative resource depends on the extent of your needs and budget.

Considerations

  • If you are comfortable paying for professional debt advice and you need guidance on other matters, a financial advisor is likely the optimal choice.
  • If your budget is tight and you only need debt advice, a credit counselor is sensible.
  • If you need hands-on support dealing with creditors, a debt relief company could be sensible.

I advise my clients to avoid incurring credit card debt. However, I think a credit card with perks, such as a cashback incentive or travel miles, can be a great way to generate some economic value on day-to-day spend. That said, you should only use a credit card to make day-to-day purchases if you intend to diligently pay off the outstanding balance before interest charges accrue.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: November 21, 2023