Why a Financial Planner Might Not Be Your Best Solution for Debt: Consider a Financial Coach Instead
When you’re drowning in debt, figuring out what to do feels overwhelming, terrifying, and often hopeless. You know you need and want to pay off your debt, but you’re not sure where to start or what would be the most strategic way to move forward. You desperately want someone to look at all your information and help you figure out the best way to get out of debt and stay out of debt. And you might be wondering who can help you with this. Can a financial planner help with debt?
This is a perfectly normal thing to wonder. When people think of financial professionals, they typically think of accountants (who help with taxes) and financial planners. Financial planners seem like all-purpose financial professionals, so they should be able to help with debt, right?
Unfortunately, the answer is often no. I’ve heard many stories of people going to financial planners to get help paying off their debt and there are a couple of things that often happen:
The financial planner wants to help and gives you a debt payoff plan, but doesn’t provide tips on sticking to it or support you in your debt payoff journey.
The financial planner won’t work with you because you don’t meet their asset minimums.
The financial planner refers you elsewhere.
Here’s the truth: financial planners are not trained in debt management and their business model is often not designed to help people with debt.
Reasons financial planners are not the best people to help you with debt
1. Financial planners have limited expertise and training in debt management
Although financial planners possess a comprehensive understanding of investment strategies, wealth management, insurance, and tax planning, their training usually lacks a focus on debt repayment strategies. (Trust me—I completed the education courses to become a Certified Financial Planner and there was almost no information on debt management.)
While they can certainly help you create a debt payoff plan, they may not have the necessary expertise to coach you through the essential lifestyle and mindset changes required for successful debt management.
2. They have insufficient time, focus, and resources
Financial planners often have limited time and resources to dedicate to helping individuals with debt. Think about it this way: a financial planner’s goal is to help you look at your overall financial picture, identify your goals, and help you reach those goals. Planners look at your financial situation and help you increase the chance of success by managing and protecting your assets.
The financial planning profession is designed to help you make decisions with the resources you already have so that you can increase your financial security and achieve your life goals. They help you look at the big picture and figure out how to get there.
A debt management plan may be a small part of that, but paying off debt requires going much deeper than simply making a plan based on the numbers. It involves digging into your day-to-day financial decision and helping you find the money to put toward your debt. It means creating a plan for how you will manage your money every single day.
The reality is that financial planners are focused on the bigger picture and don’t have the time or ability to guide you through how to make your debt payoff plan happen. It’s not that they don’t want to (many of them do)—it’s that they simply don’t have the capacity to do everything. And honestly, it’s probably better that they don’t. Professionals who focus on particular aspects of finances become experts in those areas and are better able to help you.
3. Many have an incompatible business model
Financial planners and advisors are compensated in several different ways:
Flat Fees: You pay a predetermined fee (typically between $2500 and $7500) for financial planning services. The fee is usually the same no matter how much you have to invest.
AUM (Assets Under Management): You pay a fee that is based on a percentage of the assets that the financial advisor manages for you. Typical fees are around 1% of the assets under management.
Commission: You do not directly pay anything for financial services. Instead, the fees are hidden. When you buy or trade financial products, your advisor gets a cut. This means that “advice” given is typically designed to get you to buy products that may or may not be in your best interest.
Some financial planners who charge a flat fee may include helping you get out of debt as part of their services, depending on the planner's interest and expertise. It’s great if you can find someone who does this, but unfortunately, it is not common.
Financial planners and advisors who are paid by AUM or commission, on the other hand, often do not have the capacity or motivation to spend a lot of time helping with debt.
For advisors who use an AUM model, the reality is that they get paid by managing your wealth. Typically, people who have a lot of debt do not have a lot of wealth to manage, and therefore wouldn’t get paid for working with you. This is why many AUM advisors have an asset minimum just to work with them.
(Many people see this as a negative thing, and it can be, but I know many amazing, caring, well-intentioned advisors who use this model because it’s challenging to figure out how to get paid for their work and the industry is set up to favor this model. Some financial gurus recommend avoiding advisors who use an AUM model, but it can be worth it if you find someone who is a good fit for you and provides enough value to make it worth the cost.)
Financial advisors who are paid on commission, on the other hand, have zero motivation to help you get out of debt. In fact, there’s a chance that they might try to sell you a financial product (such as whole life insurance, annuities, or other investments) that are NOT in your best interest and might actually make it harder for you to get out of debt.
Even if you had an advisor who is paid by commission who simply wanted to help you, they likely work for a company that pushes them to make their sales numbers. Time spent helping people with debt would detract from their time spent selling products.
Related: When to Get Help with Your Finances
Why a financial coach is a better option when it comes to getting out of debt
Many people have never heard of financial coaching before, which is unfortunate because many of the money challenges people have could be better solved by hiring a financial coach. Here’s why hiring a coach is a better option for helping you get out of debt:
1. A financial coach can work with you exclusively on getting out of debt
If you work with a financial planner, debt might be one of many things you work on (if you work on it at all). It’s part of the larger picture. But a financial coach can focus exclusively on helping you get out of debt if that’s what you want.
Financial coaches work with you to look at what’s happening with the flow of your money on a day-to-day basis. How much is coming into your checking account? Where is it all going? How can you better align your everyday money decisions so that you can meet your goals and create more fulfillment?
A financial coach’s only goal is to work with you to manage your flow of money in a way that works for you so that you can create more of what you want in life.
2. A financial coach has expertise, training, and/or personal experience
Financial coaches gain expertise in a variety of ways since there is no single process for becoming a financial coach. Some come to the profession after completing their own debt payoff journey. It can be valuable to work with someone who has been in your situation and can guide you from personal experience.
In addition to that, many financial coaches have specialized training or certifications, such as the Accredited Financial Counselor (AFC) certification. Others have gained experience at their jobs or simply by helping others get out of debt.
When hiring a financial coach, make sure that the person is a good personal fit. A good coach will be someone focused on helping you find what works for you instead of telling you there is only one way to do things. Ask the coach about how they work with clients, what their process is, and understand their overall perspective and philosophy to make sure it aligns with yours.
3. A financial coach emphasizes mindset and habits
Successfully eliminating debt requires more than just a debt payoff plan; it necessitates a transformation in mindset and habits. Financial coaches and counselors specialize in this aspect, dedicating their entire practice to working closely with individuals to instill positive financial behaviors, establish effective budgets, and facilitate a shift in money-related mindset. These professionals understand that true debt relief involves addressing both the practical and psychological aspects of personal finance.
This results in a much more holistic way of looking at your finances and getting out of debt.
4. A financial coach can give you personalized support and guidance
Financial coaches provide personalized, one-on-one support tailored to an individual's unique circumstances. They invest time in understanding specific financial challenges, devising personalized strategies, and holding clients accountable for progress. Financial coaches actively guide individuals through obstacles and setbacks encountered during the debt repayment journey, ensuring ongoing support and encouragement.
While financial planners can offer general guidance on debt repayment strategies, their expertise may be limited when it comes to the lifestyle and mindset changes necessary for successful debt management. For a more focused and personalized approach to debt elimination, engaging a financial coach or counselor is highly recommended. Financial coaches provide exclusive attention to debt, possess specialized training or personal experience, emphasize mindset and habits, and offer personalized support and guidance. By working with a financial coach, individuals can find the dedicated assistance they need to achieve their debt-free goals.
