How to Pay Off Debt While Paying a Financial Planner

Find out if the cost of hiring a debt advisor is worth it.

It’s not news that American households have accumulated a lot of debt. As of June 31, 2017, total household debt was $12.84 trillion, comprised of mortgage loans, student loan debt, credit card debt and auto loans, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, August 2017. That’s a lot of bills for people to receive every month and a mountain of debt to pay off.

You can find different strategies to get out of debt, but the whole process might be overwhelming. One way to attack the problem is to hire a financial planner to help you chart a path to financial freedom. Find out how to pay for a financial planner while also paying off your debt for good

How to Pay Off Debt While Also Paying a Financial Planner

It might seem counter-intuitive to spend money on hiring someone to help you with debt management because you’d incur an additional expense that you didn’t budget for. But it might be well worth the investment. Jen Lee, owner of Jen Lee Law, points out that “financial planners provide debt help by looking at your budget and telling you how much you have to pay towards debt and possibly help set up a payment timeline.”

Although you have to pay fees for a financial planner’s services, you could come out ahead in the long run, especially if you aren’t clear about how to get out of debt on your own. Additionally, you’ll save on interest payments if you pay your debt off sooner rather than later.

An experienced financial advisor could also evaluate your entire current financial situation, not just your debts. Lee highly recommends financial advisors. “Everyone needs some type of insurance, retirement planning, and someone to help figure out where to invest for the future.”

Don’t Be a Statistic: How Much Debt Americans Really Have

How to Find a Financial Advisor

Here’s a list of some different types of financial advisors who can help you manage your debt:

  • CFP: Certified Financial Planner. These financial advisors must meet rigorous professional standards, including education, experience and examination requirements.
  • ChFC: Chartered Financial Consultant. Similar to the CFPs, professionals who attain the ChFC designation have to undergo extensive education, including college-level courses, to become financial planners.
  • CPA: Certified Public Accountant. A CPA is an accounting and tax planning and preparation professional. Requirements are state-specific.
  • Credit Counselor: Credit counselors, who are certified by The National Association of Certified Credit Counselors or the National Foundation for Credit Counseling, can assist consumers in getting control of their finances by addressing debt and money management issues.

Agencies, such as the National Association of Personal Financial Advisors and the Financial Planning Association maintain lists of financial planners. You can access these lists and find a financial advisor near you.

Learn: 10 Do’s and Don’ts of Financial Planning

Financial Advisor Fees

When you research debt advisors, choose one with a fee structure that is appropriate for your needs. “Financial planners can be fee-based, commission-based, or a combination. If a person needs help figuring out a plan and a budget, the investment in solid advice from a qualified person is worth the cost,” Lee said. Below are a few of the fees you might incur when you need debt advice:

  • Flat fee: The financial planner charges you a pre-agreed fee, such as $1,000 per quarter, for the services they provide — for example, creating a financial plan for you. Make sure it’s clearly specified in your written agreement exactly what those services or deliverables are.
  • Assets under management: The financial advisor provides their services based on a percentage of your assets. Assuming hypothetical assets worth $1.5 million and a 0.94 percent assets-under-management fee, you’d pay $14,100 for the advisor’s services.
  • Hourly rate: The financial advisor charges you based on how long it takes them to provide their services. Again, make sure your agreement specifies what tasks they will perform. So, expect to pay $1,000 if the hourly rate is $200 and the advisor spends five hours on your case.
  • Commission: The financial advisor is compensated for the products they sell you. So, opting for a $10,000 product that has a 6 percent commission would cost you $600. Keep in mind that advisors who work on commission might be less objective when advising you about your investment options.

To hire a financial planning consultant who is fee-only, which means they do not receive commissions, check the NAPFA website and the Garrett Planning Network. You can also ask friends and colleagues for recommendations if they’ve worked with debt advisors.

Financial advisors operate on one of two different standards: suitability or fiduciary. Choose a financial advisor who adheres to fiduciary standards, meaning they advise you based on your best interests. Suitability, on the other hand, means the advice the advisor gives you does not need to be in your best interest. To determine which standard a potential financial advisor adheres to, simply ask them. 

Learn More: Fiduciary Standards Explained

How Financial Planners Provide Debt Help

A good financial planner takes a holistic view of your finances. The debt advisor might also look at your income and current investments and suggest ways to maximize your earnings. For example, in an effort to get a bigger tax refund, you might have directed your employer to take out too much tax from your paycheck. It might be more advantageous to simply adjust your withholdings so you get more take-home pay each month.

Financial guru Dave Ramsey suggests tracking all your expenses for a month to see where you’re spending your money. When you’ve got a better picture of your typical income and spending habits, an advisor can formulate a debt-management plan. You’ll have a clearer picture as to where you can cut back and apply any extra money to your debt. 

Your financial advisor might suggest you try debt consolidation. You could apply for an unsecured loan with a peer-to-peer lender like LendingClub, which might enable you to combine all your credit card debt and make a single monthly payment. Your interest rate on the loan might even be lower than the interest rates you were paying on your credit cards.

When a Financial Advisor Makes Sense

“A good financial advisor will bring structure and focus to your efforts to control spending and pay down debt,” said Roger Whitney, a CFP and partner at WWK Wealth Advisors in Fort Worth, Texas. “This alone could justify the cost.” You’ll feel confident that you have a plan moving forward, and it won’t be long before the stress associated with your financial struggles begins to melt away.

Alternatives to Hiring a Financial Planner

Here are a few alternatives you can use if you aren’t keen on paying for a financial planner:

  • Use Apps to Budget: Apps like Personal Capital, EveryDollar, YNAB and more can be used on any computer, iPhone, or Android device. Users can use features in the app — like tracking expenses, creating a budget, and viewing visual graphs to see where they stand financially — in order to make financial progress.
  • Credit Counseling: One of the many services provided to those seeking credit counseling is a debt management plan. A host of nonprofit organizations offer debt counseling, so you won’t have to shell out a big fee to get help.
  • Bankruptcy Attorney: Depending on the amount of debt you have accumulated, you might wish to request a free consultation with a bankruptcy attorney. The attorney can help you fight creditors and file any necessary paperwork to relieve you of the debt.
  • Self-Help: Attack the debt on your own or with a loan. Bradley W. Smith, co-founder and CEO of Rescue One Financial, says “my recommendation would be to focus first on the debt, as the rate of compounding interest is going to be much more severe than earning seven percent pre-tax in the stock market. Get as aggressive as possible or refinance the debt using an unsecured loan at an interest rate that is ‘simple interest’ and not ‘compounding.'”

Keep Reading: 30 Ways to Dig Yourself Out of Debt

Valerie Rind contributed to the reporting for this article.