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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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.

Debt
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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Things To Keep In Mind When Investing During A Pandemic

While the past year has been incredibly volatile, the stock market is thriving resolutely through all these factors. Because the market is based partially on investors’ feelings and reactions to external elements, it makes sense that there have been changes with the uncertainty of the pandemic.

However, variation is inherent in the market, and is not a reason not to get involved. Whether you’re a seasoned investor, or just starting out, this can be an auspicious time to invest.

In fact, this time period holds extraordinary potential for investors. By keeping a few key circumstances in mind, you can access the market’s capacity and significantly advance your future prosperity.

Calculate the risk you can handle

The first thing to consider is how much risk you can take on yourself. Do you have an emergency fund? If not, you need to gather this in advance of making any investments. You should have 3-12 months of backup savings before you invest in case of personal or professional difficulties.

Think long term

The pace at which you want a return on your investment will impact your decision on how and where to invest. Are you searching for short-term or long-term investment options? If you’re looking for a short/medium term return, it may be better to place your money in a savings account with a good interest rate (1-2%). If you’re interested in a long-term return (with more potential for growth), then you can examine an investment in the stock market.

Whether or not you are interested in short or long-term investments, it’s important to diversify your portfolio. Investing in funds, where an expert broker invests your money for you, can be a good option, as well as individual stocks in companies you want to stake a claim with and high-interest savings accounts or CDs.

Stay patient and informed

Since the overall trajectory of the stock market is up, it’s important to remain level-headed with your investments. When the market does slump, it’s often due to unnecessary and ill-advised panic selling, so stay firm and trust in the market to recover naturally.

Because stocks values are based on perceptions, tapping into financial news outlets and what experts are saying can help you stay up-to-date on all the movements of the market, and be aware of what factors may be influencing its direction.

Use this guidance to open up cautiously to the stock market and get the best return on your investment. For all types of investors, having expert guidance can alleviate the strain of investing.

If you’re interested in using a financial advisor to help you, contact our team today. We’re tax and investment experts who are well-informed as to the best stock and investment options for you. Contact Donohoo Accounting Services today for information about your tax and financial issues, or to schedule a free consultation. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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What’s Different In 2021 About Saving For Retirement

2020 was a challenging year for everyone, but the retirement changes that occurred because of coronavirus legislation did offer some advantages to retirees and retirement savers.

The CARES Act (Coronavirus Aid, Relief and Economic Security Act) was a $2.2 trillion economic stimulus package that sent stimulus checks to many Americans and boosted unemployment benefits. Here’s a summary of the CARES Act “silver lining” for retirees:

Required Minimum Distributions (RMD)

The CARES Act gave retirees a pass on the required minimum distribution, which would normally require them to withdraw money from an IRA and pay income tax on it. The free pass ended in 2020 however, and retirees will have to resume taking their RMDs in 2021.

Retirement Plan Withdraws

Another positive outcome of the CARES Act is it allowed up to $100,000 of retirement account withdrawals with no penalty as long as the person was younger than 59½. It also gave permission to spread out the tax on any retirement plan withdrawals over three years, and replace the money if they wanted to as long as the withdrawal was related to COVID. The early withdrawal penalty is reinstated for 2021, and any income on withdrawals will have to be counted as income unless the person qualifies for the COVID-Related Tax Relief Act (COVIDTRA) of 2020.

Retirement Loan Plans

In 2020, savers could borrow up to $100,000 from their 401(k) accounts without making payments on those loans for 12 months. In 2019 they could only borrow $50,000. This change could continue into 2021 if the retirees qualify for the COVIDTRA.

IRA Limits for Deductible Contributions

There is no change in the amount you can contribute to an IRA in 2021, but the income limits on contributing to a Roth IRA or deducting a traditional IRA are slightly higher.

Social Security COLA

The Social Security Administration instituted a 1.3 percent cost of living adjustment (COLS) for most beneficiaries that took effect January 2021. There is a $20 average monthly increase in Social Security retirement payment this year to $1,543. For a worker at full retirement age, the maximum monthly Social Security benefit is now $3,148, up $137 from 2020. Full retirement age for those people born in 1955 is 66 years and 2 months. That number rises gradually to 67 for anyone born in 1960 or later.

Do you have questions about saving for retirement during a pandemic and beyond? Or are you unsure about how or if last year’s changes in legislation affect your personal retirement plans? You can trust experienced accounting professionals like Donohoo Accounting Services to answer your questions. We’ve been assisting individuals and businesses with their tax preparation and retirement planning for more than two decades, and we would be happy to help you, too. If you are interested in learning more or scheduling a retirement savings consultation, please call 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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