‘I’m paycheck to paycheck.’ I make $350K a year, but have $88K in student loans, $170K in car loans and a mortgage I pay $4,500 a month on. Do I need professional help?

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Q: By the end of 2022, I will have earned $350,000 pre-tax as the sole breadwinner and breadwinner. This is a great starting point and I’m very aware of how lucky we are to be in this position, but I’m looking forward to improving. I currently have $88,000 left in student loans (almost $150,000 originally) and very little credit card debt (less than $2,000 with over $25,000 available). I have two auto loans totaling $170,000 for two EVs at 5% interest.

I was recently offered a $200,000 HELOC at 9% that would help me reduce some of my monthly payments and do some minor home repairs and improvements, but I want to take the right steps. And I was also presented with long-term real estate investment opportunities that are out-of-state rental properties that currently generate a 10-12% return on investment. But my biggest concern is going from one paper paycheck to the next after taxes, 401(k), bills, savings, and mortgage ($4,500). I want to use this HELOC to consolidate debt while participating in some of these investment opportunities. I’m the first of my generation to own a house and the first to earn that much money every year, and I don’t want to ruin it. How can a financial advisor help me specifically?

Answer: You have a few questions to answer here, so let’s go one at a time. The first is the HELOC. Yes, HELOCs can be a great way to consolidate debt, but the interest rate offered isn’t cheap, with average HELOC interest rates a little over 6%. “I would ask if 9% is the best interest rate you can get because it seems a bit high,” says Chris Chen, Certified Financial Planner at Insight Financial Strategists. Also, given that HELOCs generally have floating rates and we are in a rising interest rate environment, I would ask you to consider the potential impact that our Fed policy and inflation may have on interest rates. They can start at 9% and end up being significantly higher,” says Chen.

Plus, your student loans, auto loans, and mortgages are all likely below 9%, so consolidating through a HELOC is unlikely to save you money. “You might want to start somewhere else, like the snowball method, where you focus on one loan, usually the smallest one, and devote all your resources to paying off that loan while continuing to pay the others,” says Chen. . This method might work to end your student loans and maybe one of your car loans to start with.

Having a problem with your financial advisor or questions about hiring a new one?

As far as those real estate investments, what do you really know about those returns? “Regarding real estate investing, I’m assuming the 10% to 12% ROI you’re talking about is the income you would get from the investment. If so, it’s very high, and often when you get significantly higher returns than the norm, there’s something else making the investment less desirable. Be careful,” Chen says. (Also looking for a new financial advisor? This tool can help you find an advisor that matches your needs.)

Certified Financial Planner Kaleb Paddock says you might prefer working with a financial coach before working with a financial advisor. While a financial advisor helps with the development of investment strategies and long-term financial plans, a financial coach provides a more educational experience and focuses on shorter-term financial management goals. “A money coach will help you pay off all your debt, maximize your cash flow, and create systems and processes to proactively manage your money,” says Paddock.

While high income is great, there’s a concept called Parkinson’s Law, which basically says that no matter how high your income increases, your expenses will always rise to meet your income, Paddock says. “Working with a financial coach will help you overcome Parkinson’s Law, eliminate debt, and then improve your investments and life planning with a financial advisor,” says Paddock.

A financial advisor could also help, and Danielle Harrison, certified financial planner at Harrison Financial Planning, recommends looking for someone who does comprehensive financial planning and can help you create a more holistic plan for your money. “They can help you set short-term and long-term goals, and then help you with advice on financial decisions and opportunities that are available to you,” Harrison says.

A financial advisor would also help you take a long-term view of your money and create a spending plan that doesn’t make you feel like you’re living paycheck to paycheck on a $350,000 salary. “Everyone has blind spots when it comes to their finances, so finding a knowledgeable finance partner can be invaluable,” Harrison says. (Also looking for a new financial advisor? This tool can help you find an advisor that matches your needs.)

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