Managing Student Loan Debt

The first step to attaining the career of your dreams is going to college. However, more Americans than ever are leaving their universities in a tremendous amount of debt, uncertain as to how they might pay it all back.

If you find yourself in this situation, know that you are not alone. With a little expert advice and savvy financial planning, you will be on your way to managing your student loan debt like a pro.

Step 1: Understand How Much Debt You Actually Have
Many students take out a variety of public and private loans to pay for their college expenses. Because these debts are paid to different creditors, it may be challenging to determine the total amount of your current debt. Contacting each of these creditors to determine the principal amount of the loan, as well as your interest rate, will help you to create a management plan that works best for you.

In some cases, consolidating your debt can be a good financial option. This helps keep things streamlined, and prevents you from missing any payments. However, the interest rates on consolidated loans are usually much higher, so be sure to explore all of your options before committing to consolidation.

Step 2: Make A Plan For Paying It Back
After determining your monthly loan payments, it’s time to integrate your loan payments into your monthly budget. Though it may seem like it makes sense to pay the exact minimum payment on all your loans, there are advantages to paying more per month on your loans with higher interest.

You’re losing the most money over time by not paying these back, so focus on paying them off, first. Additionally, if you have substantial credit card debt, you may want to pay that back before paying any extra on your student loans, as the interest rate is likely to be much higher.

Step 3: Apply For Other Repayment Options If Necessary
If your current monthly income doesn’t allow you to pay the required monthly payments on your student loans, you may be eligible for graduated or extended repayment. These options allow you to pay smaller monthly payments over a longer period of time.

Additionally, if you have federal loans, you can apply for forbearance. This is a process that allows you to stop payment on loans for a specified period of time. However, your loans still build interest during this time that is added to the principal amount you owe, so forbearance is by no means a permanent solution.

Step 4: Consider Public Service Forgiveness
Many public service jobs, like teaching, provide forgiveness for employees after working in the job for a certain number of years (usually three to five). This can be a good option for recent graduates interested in the education or public service field who have debts to pay.

Need help managing your student loan debt? The experts at Donohoo Accounting Services are standing by ready to help. We can help you make sense of your student loan debt, and answer any other financial or tax question you have for yourself or your business. Schedule a free consultation with us today! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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Payment Options If You Owe The IRS

Owing money to the IRS is a stressful predicament, but one that many Americans find themselves in each year. Being indebted from years prior can put a strain on your present-day budget, and make it challenging to plan for future purchases. So, if you do owe the IRS money, what are your choices? Thankfully, there are many options for taxpayers out there, each with its own pros, cons and protocol.

Option 1: Pay Your Balance In One Lump Sum
If you are able to, paying your taxes in one lump sum before the annual tax deadline is your best option for avoiding any penalties or interest. For each month your debt remains, you incur compounding 5 percent interest, which will increase to as much as 25 percent after 6 months. This means that if you don’t pay a $3,000 tax bill, you could owe as much as $2,250 in interest, in addition to the balance, after six months.

Option 2: Settle Your Balance In Two Payments
If you can make half of your payment now and half within 45 days of the tax deadline, you can send a partial payment using the Form 1040-V. The IRS will contact you to let you know how much of your balance is left over, and any other fees you owe. Pay your second amount (either by check, direct deposit or credit card) within the 45 days.

If you decide to pay with your credit card, be sure you will be able to fully pay the balance on your card. The outstanding balance may impact your credit and, depending on where you are at with the IRS, your interest payments may be even more coming from your creditors than the IRS.

Option 3: Petition The IRS To Enroll In An Installment Plan
Know you won’t be able to make your payment this year, but anticipate being able to pay it within six years? An installment plan may be the right option for you.

The IRS does not give this option to everybody, so be sure to make your offer sound. Most first-time applicants are accepted, and as long as you fulfill your promise to the IRS, this can be a great option for many taxpayers.

Option 4: Apply For An Offer-In-Compromise
For those who owe more than they will ever be able to pay, the IRS offers an offer-in-compromise option. The IRS will evaluate your unique situation, and determine if you qualify to pay less than what you owe. They will forgive an agreed upon amount, which can be negotiated between you and your tax representative.

Regardless of which route you take, know that you are not alone. Many people find themselves indebted to the IRS, which is why they have created these options for you.

Interested in talking to a tax expert about which option is best for your situation? Donohoo Accounting Services has been preparing tax returns and helping small businesses with their financial needs for more than two decades. For questions or more information, contact Donohoo Accounting Services today for your free consultation. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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4 Financial Prerequisites For Buying A Home (Especially In 2021)

Buying a home is one of the largest purchases that most individuals will make in their lifetime. And if you’re like many new homebuyers, this may not be your first or last home purchase. Americans are moving homes at quicker rates than ever. With the housing market hot after the pandemic slump, knowing if you have the proper financial prerequisites is even more essential.

If you’re considering buying a home in the next few months, keep reading to learn all about what you need to guarantee you successfully close on the house of your dreams.

Qualifying For A Mortgage
The first, and most important step in home buying is qualifying for a mortgage. The mortgage is how you will pay for your home over time, so qualifying for a sustainable, low interest rate and payment is essential. To determine if you qualify, lenders will look at your monthly income, savings accounts, current level of debt, and your credit score.

Monthly Income
To prove your monthly income, you’ll need to prove at least two years of steady monthly employment, either through paystubs (for employees) or with business documents and tax papers (for self-employed loan applicants). Loan programs usually don’t have a minimum income needed in order to qualify for a mortgage, but there may be a maximum income allowed, so be sure to research this before you apply.

Savings Account
Along with showing that you are reliable with your money, your savings account will prove that you are able to cover any applicable down payment and closing costs for your new home. Not all loan programs require you to make a down payment, though, and many sellers will help to cover the closing costs, so low savings balances do not necessarily disqualify you from a loan.

High amounts of personal debt can be a make-or-break factor in qualifying for a loan. This is because mortgage lenders estimate that your monthly payments should be no more than 30 percent of your monthly income. If you have outstanding debts to pay, you may already be reaching a 30 percent threshold without an additional payment. Regardless of your circumstance, your lender will calculate a debt-to-income ratio to determine how much additional debt you are able to take on.

Credit Score
Your credit score is one of the most important pieces in qualifying for a loan, and a history of late payments or bankruptcy can automatically disqualify you for a certain time period afterward. That being said, many lenders offer loans for credit scores as low as 580 by looking at other factors. If you, like many Americans, paid down a significant amount of credit card debt during the pandemic shelter-in-place mandates, then now may be the perfect time to buy.

If you have questions about the financial prerequisites of buying a home, Donohoo Accounting Services can help! We have been preparing tax returns and helping clients with their financial issues for more than 20 years. Contact us today for a free consultation with one of our experts! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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5 Tips To Save For Retirement If You Started Later In Life

Mornings on the beach, golfing with friends, picking up an old hobby… retirement is an exciting life stage for many Americans. However, if, for whatever reason, you started later than most in your retirement savings, you may feel like you’ll never be able to achieve that much-deserved reprieve.

If this applies to you, don’t worry. If you’re starting late, you’re not alone, and there are countless strategies out there to help maximize savings in the time you have left. Above all, know that it’s not too late to save — and the best time to start is now.

Figure Out How Much Savings You’ll Need
Experts suggest withdrawing no more than 3-4 percent of your savings for each year of your retirement. Calculate your year budget and expenses, and multiply that by the number of years you’ll be in retirement to determine a baseline savings amount. For example, if your yearly budget is $30,000, and you expect to be in retirement for 20 years, you should set a goal of $600,000 for your savings.

Use Compounding Interest To Play Catch-Up
When you start saving in your first years of employment, it’s harder to contribute more than the minimum amount. This is because your income and wages are usually at their lowest. If you’re starting later, your presumably higher income can help you to contribute more per month, which will help you in the long run due to compounding interest.

Don’t Take On Too Much Risk
Traditional retirement accounts offer a 7 percent return on your investment. While there are other investment options that may offer you more return on your investment, you may also lose your principal at a time when it is incredibly risky. Consider diversifying your portfolio and, if you do invest in more risky options, make sure you have enough saved in other places to protect you in case of emergency.

Pay Down Your Debts Now
Though it may be tempting to focus all your extra income on saving for retirement, it’s important not to forget about your present-day debts. These balances will only increase over time, so paying them down now will save you money and hassle in the long run. Improving your credit score will also allow you to (hopefully!) pay less interest if you decide to purchase a new home during your retirement.

Take On A Balanced Approach
As stated before, there are many tempting ways to make a quick buck that may be tantalizing if you are starting your retirement savings later. However, losing your principal investment at this point could be devastating. Remember that along with your own investment, you may be eligible for Social Security from the federal government, and you can continue to collect on other investments even after retirement.

If you’re still feeling confused or conflicted about saving for retirement, an expert at Donohoo Accounting Services can help. We’ve been assisting our clients with their financial and tax needs for more than two decades. Contact us today to schedule your free consultation! For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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