Hiring a financial advisor makes a big difference if you are not able to pay off your credit card debt. But do you actually need a financial advisor? In this blog, we will discuss some points that will help you decide if you need one or not.
What is Credit Card Debt?
Credit Card Debt is the money you have borrowed by using a credit card and have not paid back to the financial institutions. Some credit cards have high interest rates, sometimes higher than 20% which makes debts hard to control.
Credit card debt is a common problem all over the world and affects a lot of families. This becomes critical because most of the money goes into paying interest and not the actual amount. In 2023, the US held over $1 trillion in credit cards. This shows how common and serious credit card debts are.
But why do people fall into credit card debts:
- Emergencies
- Job Loss
- Medical Bills
- Overspending.
Can a Financial Advisor Help?
Financial advisors are experts in money and guide people to make smart decisions about money. They show ways to manage debt, create budgets, and plan for the future. Now, how can a financial advisor help with credit card debt? They can:
- Help design a simple but powerful budget to cut unnecessary spending.
- Review all your debts and prioritize the debts accordingly.
- Suggest ways to restructure or consolidate debt.
- Offers advice beyond what credit counsellors and debt settlement companies provide.
- Offers a written plan with financial milestones and action steps.
Many financial advisors have special training and certificates, like CFP (Certified Financial Planner). Make sure the advisor is qualified and trustworthy before working together.
Popular Debt Relief Strategies:
There are multiple ways to get out of the credit card debt:
1. Debt Avalanche Method: Paying off debts with the highest interest rate first while making minimum payments on others. This saves the most money on interest.
2. Debt Snowball Method: Paying the smallest debt amount first is a quick win and move to the next smallest.
3. Balance Transfer: Moving debt from high-interest cards to lower-interest cards. However, check for fees and limitations.
4. Consolidation: Combining all your debts into monthly payment, sometimes at a lower interest rate. This makes payments simpler to manage.
5. Negotiation: Communicating with the lenders to lower interest rates or settle the debts.
Facts to Know:
- Millions of people have credit card debt.
- In the US alone, credit card debt totals over $1 trillion.
- Interest rates on cards can range from 15% to 24% or higher.
- Making minimum payments usually covers only the interest, not the principal debt.
- High debts hurt credit scores, making future borrowing more expensive.
Financial Advisor vs. Credit Counselor:
- Financial advisors offer broad money advice; they help with budgeting, investments, retirement, and debt planning. Their services usually come with a fee, but they can provide a total plan for your finances.
- Credit counselors are often free or low-cost. They help create debt management plans and may negotiate with creditors, but their advice is usually limited to debt, not investments or long-term financial goals.
If you want help with more than just debt, such as planning for retirement or buying a home, a financial advisor may be a better option for you.
Do You Really Need a Financial Advisor?
You may not need a financial advisor if:
- The debt is small and simple.
- Free resources and budgeting apps give enough support.
- You can stick to a plan without expert help.
Seek a financial advisor if:
- The debt feels overwhelming, or you’re falling behind on payments.
- Previous attempts to get out of debt haven’t worked.
- You want a complete financial plan for your future.
- Negotiating with lenders or handling multiple debts feels confusing.
Note- Hiring a financial advisor can be expensive, so you can start with an NGO financial advisor.
Alternatives to Financial Advisors:
Credit Counselors:
- They are often free or low-cost.
- Counsellors specialise in creating simple debt plans, negotiating with creditors, and offering basic budgeting help.
- Do not give investing or long-term money advice as advisors do.
Debt Settlement Companies:
Most credit card companies don’t work well with debt settlement firms, so be aware of such companies. Scammers can charge high fees and often hurt your credit score for years. In the end, you may owe more after fees and interest.
DIY Apps and Online Tools:
These are budgeting apps and debt calculators that help track your spending and plan payments. Notably, these are best for people who are comfortable managing money without outside help.
Easy Steps for Debt Relief:
1. List all your debts and interest rates.
2. Cut out unnecessary spending.
3. Pay more than the minimum each month.
4. Decide if you need expert help.
5. Contact a trusted financial advisor or credit counselor if not making progress.
Conclusion:
Credit card debt is stressful but fixable. All you need is a proper plan and vision for fixing it. That’s where a financial advisor helps you. They help you create a smart plan, help manage money, and guide you to financial freedom. But you need to be careful when choosing one. There are scammers who often promise unrealistically. Compare their services to free credit counseling and choose what fits best for you.