Debt is a very important part of Financial Planning. Some of the largest expenses are difficult to afford without getting a loan. For example, most people need to get a mortgage in order to buy a house. Many need to rely on student loans in order to pay for a college education. It is also common for many to purchase a vehicle with an auto loan, especially since car loans have interest rates much lower than home mortgages. That is why debt is an important part of personal finances. A financial advisor can help clients use debt strategically to meet their long term personal finance goals.
Typically, a lot of time will be spent on real estate debt. For example, the advisor might recommend that certain clients refinance their mortgages. The monthly payment can often be lowered by refinancing to a low interest 30 year mortgage. On the other hand, some may want to save as much money as possible on interest. It may be appropriate to move to a 15 year mortgage or an adjustable rate mortgage to get the lowest interest rates available in the market. Over the long run, tens of thousands or even hundreds of thousands of dollars in interest may be saved by switching to the right mortgage. The fee earned by the advisor is well worth it after choosing the right mortgage.
Many clients need financial advice in saving for a child’s college education. Depending on the parent’s income level, it may be possible to factor in fianncial aid that doesn’t have to be repaid such as grants. Many will need to get student loans in order to pay for a college education. An advisor can help clients figure out how college will be paid. In many instances, college will be paid with a mix of work study, grants, scholarships, and student loans. Of course, the advisor will try to minimize the use of student loans as much as possible.
If clients getting financial planning have other debts such as credit card, the advisor will work with clients to get rid of those debts. Interest on credit card debt can be quite high. Even if interest rates are low, they may not last forever if they are teaser rates. That is why most advisors will want clients to pay down credit card debt as soon as possible.