Top 10 ways to control client debt

9. Explain Yourself – If you’ve been someone’s “Insurance Guy” for 20 years, you can’t just wave a magic wand and expect your clients to be comfortable telling you all about their well-concealed and all-too-embarrassing borrowings living in any number of accounts.

If you are going to make debt management a part of your practice, you need to explain yourself first. Position this new topic, tell your clients why you feel this subject matter deserves some time in your meetings with them. Make them feel comfortable with the idea before you start asking questions. Explain that debt is becoming a complex problem for many and that you are not making any assumptions about their debt but you don’t want them to miss out on a valuable opportunity to make the most of their money. Let them know that even the most educated and disciplined client can benefit from a double check that their liabilities are managed in the most efficient manner.

8. Include debt related questions in your process – With new clients it will be easier to move through the explanation and straight into questions. You’ve got to know what’s hiding on the other side of the balance sheet so you’ve got ask good questions. After all, you can’t fix anything if you do not know it’s there. Take your time with your existing clients as moving through these questions might be a little difficult at first. I suggest you make sure you know the following:

• Type of debt. Ask about all types of debts – mortgages, car loans, lines of credit, credit cards, store cards, no payment no interest purchase plans, any personal loans, etc.
• Current outstanding balance
• Current limit for revolving accounts like credit cards and lines of credit
• Monthly payments (ask for both average and minimum)
• Interest rates
• Creditor Insurance premiums such as “balance protector” or mortgage life insurance
• Amortization of all fixed loans

7. Money is About More than Math -You need to know more than just the numbers. I suggest you include some of these questions too;

• How do you feel about your current debt?
• How do you spend your money – credit, debit, cash?
• How do you track your spending?
• Are you comfortable with how much total interest you’ll be paying on your debt?
• If you could manage your debt more efficiently, therefore saving interest and paying down principal faster, what would you do with any freed up cash flow?

It’s not so much the exact answers to these questions you are looking for as much as it is the discussion that happens because of them. You should listen carefully as your clients start to really think about how they use their money. Pay close attention. Don’t offer any advice just yet. Just ask and listen, ask and listen.

6. Learn About Credit – Reach out to your centers of influence and find someone who you can talk to about the way credit works in Canada. For instance, I learned from a combination of professionals. Early on a patient bank manager taught me about how my own credit worked. Later in my career I’ve been fortunate to have a great relationship with a mortgage broker and my Manulife One Banking Consultant. Between the two of them I’ve learned a thing or two about how to provide debt related advice with the credit score in mind. For instance, the percentage of available credit on revolving accounts matters, being too close to the limit will reduce you and your client’s credit scores.

5. Unify The Debt – Debt is never to be treated like investments. It is not to the client’s benefit to be diversified when it comes to liabilities. Get clients down to only one debt account whenever possible. I am a huge fan of a good All-in-One. They allow clients to make focused efforts on debt repayment without taking away the flexibility so many of us need these days as the world around us changes at a rapid pace. Bottom line: debt can be far better monitored and controlled when it’s all in one place. Clients also have to face their full balance and can see their progress on a monthly basis. You can’t change what you can’t see!

4. Control the Controllable – In order for a client to make the best use of any debt reduction strategy, they have to control their spending. While that is easier said than done, over the last nine years I’ve had overwhelming success with one strategy in particular. It works 100% of the time with everyone, at every income level. I recommend all clients use cash for discretionary spending. I suggest they take a weekly amount and divide it among the family so everyone can see what they have to work within a given week.

3. Harness the Power – Do NOT let go of the freed up cash flow. If you help clients get debt under control, you should direct at least half of any new monthly cash to your client’s financial future. Depending on the client’s needs, this might mean any combination of investments, savings or insurance. Either way, make sure clients know at the outset that the purpose of this exercise is to offer them the best possible financial future, not the best possible flat screen.

2. Major Purchases – I’m not recommending you babysit your client’s every penny but you should make sure they know part of the planning process will now include debt. So, let them know that if any major purchases are to come up between reviews they know to reach out for a chat with you as big ticket items can have a big affect on your plans.

1. Upgrade Your Review Process – From the original planning process be sure to print out a projection of your client’s debt reduction plan. When you do an annual review check where they should be against where they are. Always make sure you know why they are ahead or behind their target numbers. Reviewing their total net worth gives a far more accurate picture of your client’s finances each year. And unlike the markets, they can do something to control their debt. This feeling of being in command of one’s finances helps them cope better with the areas of finance they don’t have any power over.