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Question: I’m 57, single, have $300,000 in a 401(k) and about $12,000 in savings in different accounts. I owe $93,000 on a house and have $20,000 in credit card debt. I make about $100,000 per year. Should I consolidate my savings? Should I pay off my credit card with the savings and then rebuild my account? I am working on paying off the credit card but I have terrible spending habits. I really don’t want to work until I’m 67. What advice do you have? Should I hire a financial planner to help me?
Answer: First, we’ll tackle your savings, credit card and spending situation; and then get into whether you should hire a financial planner and, if so, who might be the best fit in your situation. (You can use this free tool to get matched with a fiduciary financial planner who might meet your needs.)
Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.
“You make a good income — and as a planner, I’d challenge you to put yourself on a strict budget for a year and diligently work on paying off the credit card with cash flow,” says James Daniel, a certified financial planner (CFP) at The Advisory Firm, who recommends consolidating your various savings accounts for easy access in an emergency. “Don’t deplete your reserves to pay off the credit card because you never know when an emergency will happen.”
It’s generally a good idea to prioritize paying off credit card debt due to the high interest rates, but in your case, “you expose yourself to taking on more credit card debt should a large expense arise and you’ve exhausted your cash savings by paying down your current credit card debt,” says Levi Sanchez, a CFP at Millennial Wealth. Instead, consider a balance transfer credit card that provides a 0% interest rate for a set period. “That will stop the interest from accruing, you’ll maintain emergency cash reserves and you can prioritize your excess cash on a month-to-month basis towards paying down your credit card balance,” says Sanchez.
If you have enough discipline to not spend excess cash, you could set it aside in a high-yield savings account with your emergency fund to earn interest over the period of time that your balance transfer card is set to 0% APR, Sanchez notes. “At the end of the 0%, you’d put the lump sum of cash towards the card to pay it off completely,” says Sanchez.
Jim Kinney, a CFP at Financial Pathways, says he would like to see you with at least $20,000 in cash for emergencies. “From now on, you save first, then spend. The sense of freedom you will feel by being out of debt will be well worth the effort you put into it,” says Kinney.
A budget is key to get your spending under control, adds Anthony Ferreira, a CFP at WorthPointe Wealth Management. “If you don’t get in the habit of spending less than you make, you will not only work until you’re 67 but likely longer,” Ferreira says.
Moreover, Kinney says, “Let’s change the phrase ‘I have terrible spending habits’ to ‘until now, I have had terrible spending habits.’ You need to make a firm commitment to getting your savings under control before you embark on the next steps.” To do this, he suggests ditching credit cards. “From now on, you only spend what you earn using cash or a debit card,” says Kinney.
Another thing to consider is that “you’ll need to find ways to increase your retirement savings if you want to retire before 67,” says John Bovard, a CFP at Incline Wealth. If you can, take advantage of catch-up contributions, for example, to increase retirement savings.
Is a financial adviser the right move?
A financial planner can help you with things like budgeting, saving, investing and retirement planning. And if you feel like you can’t get out of debt and save more on your own, hiring a pro might be a good idea. (You can use this free tool to get matched with a fiduciary financial planner who might meet your needs.)
You’ll may want to look for a fee-only CFP who works on an hourly basis or per-project basis. The reason you’d likely benefit from a planner who charges hourly, versus one who charges based on assets under management (AUM), is the cost. Hourly planners typically charge between $150 and $450 per hour, plus you can determine when and how often you check in with them. There are also planners you can hire for one-time financial plans that may be more cost effective over the long run, with the average cost for one-time services ranging between $2,500 and $7,500.
Fee-only advisers are only paid by the client, meaning the potential risk for conflicts of interest is low and CFPs are thoroughly trained and vetted, required to complete coursework and thousands of hours of work-related experience.
“A financial planner can help facilitate a savings strategy to ensure you’re spending within check and saving and investing on a month to month basis” says Ferreira. “Hiring a financial adviser is a lot like working with a physical trainer, they can help keep you accountable to your own goals.” Here’s who might benefit from working with a financial planner, and here are the questions to ask any planner you might want to hire.
Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.
Questions edited for brevity and clarity.
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