Managing Debt: How Financial Advisors Help

Debt is often a necessary part of our financial lives, especially for buying big-ticket items such as homes, cars, or higher education. However, you may feel mounting pressure and stress as you accumulate more, making it hard to visualize paying it back. Therefore, it can be helpful to get the outside guidance of an experienced financial advisor, who can give you viable and concrete strategies to manage your debt and maintain good credit standing.

In this article, we’ll highlight the critical role of a financial advisor in helping you manage and repay debts, including an overview of what debt management is as a practice and the tangible and intangible ways a professional can assist you. Additionally, we’ll outline how you can find an expert specializing in debt management strategies.

What Is Debt Management?

Debt can be a typical way to add expensive items and experiences to your life, including home mortgages, car loans, and college student loans, making it a crucial factor in your financial picture. Depending on the number and size of your loans, however, it can be challenging to manage and, consequently, become a significant source of stress if you fall behind. This can especially be the case if you’re facing high interest rates, such as with credit cards, which can threaten your credit score if you fail to make timely payments.

In that way, debt management is a service financial advisors offer to reduce stress and create actionable repayment strategies. As a practice, it “involves creating a strategic plan to reduce and eliminate high-interest debts, such as credit card balances, personal or business loans, and student loans, ultimately working toward financial independence,” explains Winnie Sun, co-founder and managing director of Sun Group Wealth Partners.

When you meet with an advisor, one of the immediate details they’ll examine is your debts and how they influence your comprehensive financial plan. Varying by situation, you may have several types of debts to manage, which may have different payback periods and interest rates. A skilled professional should be able to provide strategies for repayment, including consolidation and budgeting techniques. They could also give you confidence to maintain good credit while taking on debts.

How Hiring a Financial Advisor Can Help

Being in debt can be hard to handle alone, especially alongside handling other areas of your finances. Working with a financial advisor can allow you the confidence to repay your debts and maintain healthy habits. They can help you evaluate the debts ahead of you, construct an effective budget, and enable you to fix and maintain your credit.

Below are the various ways a financial advisor can help with debt management:

Easing Stress

You may feel significant emotional and financial stress as you have more debt or lag on payments. It can weigh down your ability to be financially independent, but it can also make it hard to feel like you’re moving in a positive direction if your primary goal each month is to pay off loans or credit card bills.

“Clients often feel a loss of control as debt continues to grow, leading to feelings of embarrassment and guilt that make breaking the cycle more challenging,” says Sun.

Financial experts can provide a great deal of value in decreasing the stress of owing money. While managing debt can be overwhelming, they can offer an experienced perspective on what it would take to pay off debts, making the pathway more attainable. Beyond that, they can put forth concrete structures and ideas to help you tackle debt.

“A financial advisor can serve as a supportive coach,” says Sun. “For instance, some of our longtime clients recently reached out for help with debt management due to stress in their marriage. Now, they send in their credit card statements monthly, participate in monthly Zoom calls, and we’ve guided them through balance transfers to 0% interest cards and other strategies,” she adds.

Evaluating Debt

As noted, debts are not created equal. You may have different ones with varying interest rates, payment terms, and purposes. For instance, you may have more long-term loans, such as a mortgage with a long payback period. You might also encounter credit card debt, which is easy to take on and may come with potentially lofty interest rates.

A financial professional can evaluate the debts on your balance sheet to devise a repayment strategy. Working closely with you, they may analyze each type of debt and interest to determine which debts to prioritize first.

“We begin by organizing a call to review and categorize the debt,” Sun says, explaining her approach. “Then, we discuss various repayment methods, allowing the client to choose their preferred approach. We continue monitoring their statements throughout the process and encourage them to celebrate milestones along the way.”

Building a Solid Budget

Building a budget to manage your cash flow is one of the most vital steps an advisory expert will take to correct the course on debt repayment. In a consultation, your professional will review your finances, including your monthly income and expenses. Then, they’ll examine opportunities for savings and redistributing some funds to help pay debts off.

“We often use a customized budget worksheet and recommend adjusting subscriptions, opting for curbside pickup, and other money-saving strategies to support debt repayment,” says Sun, describing her approach to budgeting for clients.

Budgets look unique for each person, but they might involve allocating a certain percentage of money to debt repayment and another portion to saving and discretionary purchases. For example, a template advisors may use is the “50/30/20 rule” (although percentages may vary depending on your levels of debt):

• 50% to basic needs, such as housing or food.
• 30% to discretionary purchases and entertainment.
• 20% to debt repayment and savings (if possible).

Repairing or Maintaining Your Credit

Maintaining good credit requires diligence, ongoing monitoring, and smart financial decisions. If debt has hurt your credit score, an advisor can lend their expertise in strategies to repair your credit and keep it strong into the future.

“We advise clients on managing debt—especially avoiding credit card balances—sticking to a healthy budget, focusing on income growth, monitoring changes in their credit report, and maintaining habits that keep credit scores high,” Sun says. “This helps clients stay informed and empowered to improve their credit over time.”

Your financial professional should be able to deliver recommendations on strategies you can adopt by yourself to stay on the right track. As Sun mentions, this may include timely repayment strategies but also ways you can monitor your progress over time. An advisor can also help you understand the risks of certain types of debts, including those that harm your credit the most.

Creating a Long-Term Plan

After evaluating your debt and assessing your debt situation, a financial advisor will help you establish a long-term management and repayment plan. More specifically, this may include strategies for paying off current debts, including ones with an immediate sense of urgency and ways to safely take on more debt to accomplish goals within your broader financial plan.

Alongside an advisor, a repayment plan may include multiple elements, ultimately depending on the complexity of your situation. A typical one might comprise “a detailed spreadsheet, cash flow analysis, strategies to reduce spending, and monitoring new expenses,” explains Sun. A professional will offer budgeting methods, letting you live life on your terms while paying off debt and balancing the potential for upcoming large purchases or expenses.

Being in debt can make it harder to contribute to savings and retirement accounts or build a stable emergency fund. So, a financial advisor can also prepare you for money management after you’ve paid your debts, helping you craft a solid plan for your freed-up cash. “Once debts are paid, funds can be redirected to emergency savings, retirement planning, and other financial goals,” says Sun.

Finding a Debt Management Advisor

Most financial advisors experienced with comprehensive planning should have the necessary skills to assist you with debt management. If it’s a primary service they offer, you can check to see if it’s listed on their website or check their Form ADV Part 2A (usually available on their website or through the SEC’s IAPD tool).

Many firms and experts also offer an initial consultation. During this meeting, you can take the opportunity to ask them about their debt management services and how they may work with you under your circumstances.

During your search, it’s important to prioritize experts that follow a fiduciary duty. These typically favor fee-based structures over commissions and often have high-quality credentials such as Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC).

To find a reputable financial advisor that fits your needs, consider using a free matching tool, such as this one. After answering a short set of questions about your circumstances, it will pair you with a professional near you.