Personal debt levels in the US are currently sky high:as CNBC has reported, total household debt currently sits at above $13 trillion, meaning there’s a ticking debt time bomb everywhere you turn. If you’re one of America’s almost 300,000 financial advisers, then, it makes sense to think about how you can advise your clients to break out of the debt cycle and get their finances back under control. This could involve taking out a stocks and shares savings plan, for example, or you could encourage your clients to invest in their own properties to help improve the sale price.
Stocks and shares
If your client is able to save some money, they may be able to invest it in such a way that their debt is paid down over time. Stocks and shares, for example, can provide high returns: the Nasdaq composite index, for example, has grown by over 5,000 points in the last ten years. However, it’s important to think twice before advising a client to do this. If the rate of return on the investment is higher than the interest paid on the debt, it makes sense. However, interest rates sit at a relatively low level of just over 2% at the moment – meaning that this isn’t always possible except in the highest risk-reward scenarios. In that case, any saved money may be best spent on paying down the debt.
In the event that your client owns a property, however, it makes sense to use this as a way to battle the debt burden. Adding value to the property and then selling it could provide a decent profit, and this could be put towards paying off debt. Putting in a new bathroom can add an average of $11,000 on to a property’s price, while creating an extra bedroom, garage space or a conservatory can also push up value. Adding IOT features to a property, such as smart lighting, can not only push down your bills and let you save cash in the here and now, it can also boost the chances that a potential buyer will opt for your client’s property.
DIY can now be done to a high standard thanks to Youtube tutorials and online resources, too, so it’s a low cost mode of investment which won’t necessarily break your client’s bank account. The advantage of doing it this way is that it doesn’t require additional significant cash spending, as the stocks and shares route would. Depending on their age, your client may also be eligible for home equity release schemes – so it’s worth looking into that, too.
There are, then, lots of options for your clients to make the move from debt-laden to debt-free. Whether they choose to invest in their properties or they open a stocks and shares account, there are plenty of possible avenues to go down. And as an advisor, you’ll be able to play a significant role in giving advice on what is financially prudent.