Here’s a reason why many people, starting out to manage money for themselves for the first time, need an advisor. The advisor can be, sometimes must be, a teacher who helps clients avert disaster.

And disaster is on the horizon of many Americans, who are nearing record credit card debt levels, according to the Federal Reserve.

So, the respected advisor must convince the client to get rid of card debt asap.

How?

Ready To Do Better?

Getting out of debt, says an advisor, is like losing weight. One must be serious.

“One must make a commitment and say that enough is enough,” according to Bernard Kiely, a certified financial planner (CFP) and certified public accountant (CPA) with his own firm in Morristown, New Jersey.

“The advisor needs to convince the client that card debt is dangerous because the average card carries an average 17.11 percent interest rate,” adds Ted Rossman, an analyst with CreditCards.com. And, worst than that, card companies don’t want you to retire the debt.

In paying down a card, Kiely says, the card companies want cardholders to make minimum payments. That, he adds, make them rich.

“The interest rate on your credit card is your enemy,” he warns. That because for some cardholders debt can become perpetual or virtually perpetual.

How Can I Convince You?

Advisors should use compelling examples, Kiely says. He cites the example of a $5,000 card at 13 percent interest. Make the minimum payment, it takes 26 years to pay off the debt and the client pays $5,500 just in interest.

By contrast, make monthly payments of $450 and the debt is retired in about a year and interest comes to $352.

However, there’s lot of card counseling work ahead for advisors. The ability of the average household to eliminate debt is declining, says the Federal Reserve in a recent Survey of Consumer Expectations.

“Households’ perceptions about their current financial situations deteriorated in September, with the proportion of respondent feeling they are better off than a year ago decreasing 2.4 percent points to 34.9%, the Fed said.

Whose Responsibility Is It?

It is up to the advisor, indeed it is up to GregoryBresiger.com, to convince cardholders to make a serious commitment and then find the most effective debt reduction strategies.

Kiely says clients need a plan to attack red ink. Over an extended period of paying off a single card debt, he says “make the biggest payments first. This will save a bundle on interest.”

Do you have multiple cards with outstanding balances?

“If a client has several cards, first make the biggest payments on the cards with the highest interest rates,” adds Charles Hughes, a CFP in Bay Shore, New York.

“Sometimes people should just stop putting charges on their credit cards for a few months. And only begin again when you have cleaned up your debts,” says Lewis Altfest, a Manhattan CFP.

Debts of the Rich and Famous

Altfest’s clients generally earn high incomes. But it is “amazing” how many high earners have card problems, he says. Altfest, who says even a family member has had the problem, spends a good deal of his professional life card counseling.

Kiely says the zero percent credit card transfer offer can make sense, giving a consumer a year or more to wipe out card debt.

But Rossman says cardholders should move fast.

“These zero percent offers,” he predicts, “are probably going to become fewer and less generous as interest rates start to rise so it makes sense to take advantage of them now.”

Kiely adds “they can be good but they only make sense if you then don’t start building up card debts with other cards.” One of the problems with the zero percent deals is that many clients don’t even know they exist, advisors say.

A Basic Change Needed

Altfest says some people “have to change their personality” to safely use cards.

Advisors should remind a client that excessive debt can destroy a person’s life, even if he or she earns a nice income and should never have to worry about debt. But, as our blog has pointed out many times, just making a good income is no guarantee of financial health.

The advisor can point to history—the history of how card debt, and debt in general, has ruined many lives. (Why is the former so dangerous? It is because card debt is so easy to obtain; credit card lines are often granted to people who have very little in income and can easily slide deeply into debt. This often leads to bankruptcy or near bankruptcy as well as incredible unhappiness).

So the effective advisor, whether a CFP or a personal financial blog, should prevent the cardholder from aping the Bourbon kings.

Many of these kings, whose dynasty ended up in the ashcan of history, also had money woes. Historians said of the Bourbons, “that they learned nothing and forgot nothing.”


Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post. The eBook version of his latest book "MoneySense" is available now for Free Download by clicking HERE

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