The right way to talk about debt

Debt is a complicated topic, and talking about it isn’t always easy. While advisors may feel more comfortable dealing with the topic of debt from a strictly financial perspective, that may not be the way clients experience debt.

In a client’s mind, debt is as much an emotional issue as a financial one. Advisors who fail to acknowledge and respect the sensitivity some clients may feel about debt could run the risk of alienating them at the moment they most need expert advice.

Here are some suggestions on how to approach the topic of debt with clients.

THE RIGHT WAY TO TALK ABOUT DEBT:

Emphasize the positive

Clients need to know things aren’t hopeless. It is possible to control and eliminate debt—and you’re the person who can help them do it. Staying upbeat and emphasizing the positive can help neutralize the feelings of embarrassment and helplessness that often accompany debt problems.

Think beyond the budget

Yes, getting clients to complete a monthly budget is an important part of getting debt under control. But a cash flow plan might be even more important. By dealing with debt in terms of the cash that’s coming through the door every month, you make the debt discussion tangible and practical. By writing a cash-flow plan with the client, you can target areas for improvement and identify areas of special focus.

Review and revise

Savvy advisors know debt management isn’t a one-time discussion—rather, it’s an ongoing, multi-year dialogue. Make sure to review the client’s debt at important times: after a liquidity event, for example. Or as the client transitions to retirement. Or after receiving a large lump sum.

Talk about good debt and bad debt

Some clients believe any debt is bad. Advisors know that’s not always the case—borrowing to invest in appreciating assets such as an RRSP or a rental property can sometimes be a sound financial strategy. Make sure to take the time to explain the difference between good debt and bad debt, with appropriate case studies that make it clear.