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Using a Financial Planner to Avoid Debt

By: Garry Crystal - Updated: 14 Oct 2012 | comments*Discuss
Financial Planner Debts High Interest

Setting out a financial planner isn’t everyone’s idea of fun but using one can help when it comes to avoiding debt. A financial planner needn’t be complicated and it can be used to assess exactly where money is being wasted.

The Benefits of a Financial Planner

It is very easy to simply spend money every month and end up having very little show for it. Consumers who have multiple credit cards, loans and other credit agreements can see their disposable income disappearing very quickly. Anyone who has multiple forms of credit should realise that they are paying a large amount of money every month in interest fees. Setting out a financial planner will give a detailed view of exactly where money is going every month. Using a financial planner can stop wasted expenditure, which can mean avoiding unnecessary borrowing.

Financial Planning to Avoid Unnecessary Debts

One of the major aspects of creating a financial planner should be to decrease the amount of expenditure on interest fees. This can include repaying debt more rapidly with the long term view of eliminating interest fees and credit debts altogether. A list of all credit debts such as credit cards, loans, hire purchase should be included. Assess how long it will take to clear these debts at the current repayment rates. People who make only minimum payments to credit contracts can find that they will be paying these debts for decades.

Assess the High Interest Credit Contracts

One of the most important factors when clearing debt is repaying high interest contracts first. The less interest paid each month the more disposable income will be available. The more disposable income available the less need there is to continue borrowing. High interest debts should be considered a priority and these debts should be paid first by as much as possible. Make minimum repayments on low interest debts while clearing off the high interest debts first.

Assess All Household Income and Expenditure

There are some debts that cannot be avoided such as mortgages, council tax and utility bills. These should all be detailed in a financial planner along with food, clothing and monthly entertainment. It is surprising the amount of money that is spent every month on what is regarded as small expenditure. For instance, a person who buys a sandwich every day at work is likely to spend more than double the amount as opposed to a person who makes their own. These small financial outgoing every day should be detailed in order to see how cuts can be made.

Look for Ways to Be Financially Smart with Credit

If living without credit cards is an impossibility then look for ways to reduce the interest paid. This can include moving balances from high interest credit cards to credit cards with lower interest rates. Look for credit cards that give long-term interest free periods to help clear off those high interest debts. Move high interest debts such as store cards onto low interest credit cards. Do not spend on the new credit card during the interest free period; use this card to clear off high interest debts without paying any interest.

Start Spending Less than You Earn

Spending less than you earn speaks for itself but a huge number of people spend far much more money each month than they actually bring in. This is where credit cards take a hammering and the cycle of debt kicks in. Consumers can simply become used to spending far more than they earn by borrowing, even though this means paying out in interest. Spending less that you earn will mean that there is some disposable income left at the end of the month. This can be used to save money, which can then be built up and used instead of borrowing.

Set Financial Goals with a Financial Planner

Setting up long-term goals with a financial planner can be an incentive not to borrow. Mark out when certain credit debts will be paid. Once these debts are paid there will be extra income and less expenditure. Think of how much more income can be brought in every month as the credit debts are cleared. The more income that can be brought in each month the less need there will be to borrow using credit cards and loans.

For most people the dream of living without debts does seem impossible. There are some debts that are unavoidable and actually make financial sense such as mortgages. But credit debts such as credit cards, store cards and high interest loans are simply flushing money away in interest payments every month. Create a financial planner and discover how much is being wasted every month, and then start to avoid debt as opposed to creating it.

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