Debt is a big part of a lot of our lives (including mine). And it can be a big blocker in terms of some of the things we want to do/achieve, like moving abroad. Although the answer to the question ‘can I move abroad with debt?’ is a definite yes, it really more important to understand what impact your debt will have on your life abroad. I’ve put together 5 questions below to ask yourself about your debt that will hopefully help with your decision making process.
1. Will I bring in enough money to cover my new outgoings as well as my existing debt?
Now I don’t want to teach you to suck eggs but I have to mention this one. It’s got to be the first point of call in your decision making process in terms of the affordability of a move abroad. You need to know exactly how much you need to pay out per month (existing debt plus new expenditure in your new country) and then compare that against what you’ll earn, or what you’re hoping to earn. If the amount outgoing is close to or more than the amount incoming then it’s obviously not a good idea. It might be tempting to take it close to the wire, like having €2000 coming into your bank and total expenditure of €1860 (just an exame of course). But ask yourself whether €40 is enough to get you out of a situation if it arises. What if some bills are higher than anticipated? What if travel is a bit more expensive or you suddenly need to fly to your original country more often. I know it’s hard to imagine all the scenarios but take my experience as an example, not having back up cash is debilitating (particularly when you have children). I budgeted for a spare €150 per month when we moved to Barcelona but unfortunately, due to the miss-information with my salary it was wiped out on day one (see My Relocation Story for more info on this one). Don’t leave yourself short, give yourself options. You don’t want to ruin your opportunity because of lack of funds.
Be a budgeting ninja and over estimate everything! It’s better to be safe than sorry.
Some people might say that taking this approach means it will take you longer to move abroad and could lead to ‘analysis paralysis’. I say that if you don’t do this then you’re risking everything by jumping into the unknown with little backup. As with some of my other topics, this is dependent on whether you’re single, a young couple, a family or a retiring couple. I moved abroad as a family and we were in a tough situation with the drop in disposable income. Here are a couple of resources you can use to get an idea for costs:
- The World Fact Book – A service provided by the CIA, which offers a whole load of information about countries and their economy
- Numbeo – A site that is driven by information from people all over the world. It provides data on the average cost of things, from food through to utilities and internet. A great resource to help with budgeting
2. How will I actually make the payments from abroad?
This is more about the logistics of getting the money from your foreign bank account to the country where your debt needs to be paid. I think you have three options here (if you know of more please let people know via the comments):
- Keep your existing bank account when you move abroad – This is definitely an option and would help with managing your debt. If it’s the account that your payments are currently made from then you simply put the right amount in there each month and you’re sorted. This is what I did with our existing debt. You can find out more about keeping your bank account via my post ‘Can I keep my bank account when I move abroad?‘. By doing this you don’t necessarily need to notify the companies that your debt sits with, which was something I was worried about as I wasn’t sure whether they could recall the total amount or not.
- Use someone else’s bank account – If you don’t want to keep your bank account then you could always get a family member or friend to help you by managing the payments through their account. This would obviously require a high level of trust and understanding as that person would be putting themselves at risk.
- Set up direct debits from your new bank account – You should be able to pay direct debits from an account in your new country to your debt providers in your original country. It might be something to double check with your new bank before signing on the dotted line. I’d also recommend checking with your debt provider whether they’re comfortable with you leaving the country and continuing the debt just to be safe. You don’t want them to see a change in bank account details to a foreign account and then come chasing for the money.
3. What impact will the exchange rate and transfer costs have?
Exchange rates will depend on where you move from and to of course. If you move from Spain to France then you’ll still be using euros so there’s no need to worry. If you’re moving from the US to England then you’ll need to factor this in. It’s not a big deal as long as you’re prepared for it and keep your eye on it. The main impact is that your payments could be different from one month to the next depending on fluctuations in exchange rates. My motto once again is to over-budget for your bills and then you should have a level of tolerance in case things changed month to month. It obviously means it could change positively too. Transfer costs will depend on who you bank with. I made sure I joined a bank that didn’t charge for international money transfers (Barclays) so all I had to worry about was the exchange rate. Shop around and find a bank that meets all your needs and make sure you ask the bank about the charges on the account (including card use charges etc).
4. What are your options for clearing debt in the country you’re leaving?
I would highly recommend really looking into whether you have any options to clear down your debt before you go. I know this is easier said than done and I’m a fine one to talk, being that I moved abroad with debt. But having done it, I can speak from experience. It depends on the amount of debt you have and how well you think you can manage it based on answering some of the above questions but try to be creative with your ideas. Here are some to get you started:
- Use any cash you make from selling cars/motorbikes
- Cash in savings/share schemes – financial gurus will normally say that it’s not worth having savings if you have debt
- Sell items from your house, such as furniture, electrical goods etc – You can always get credit in your new country to buy replacements
- Get credit in your new country to clear your old debts – might seem counterproductive but at least you’re keeping things close to you, making it easier to manage
This will all depend on your timescales for moving abroad as if you’re planning on going in 2 months then there’s probably not much you can do. If you have an 8 month plan then you’ve got more time to play with and find options. All I’m saying is consider it as an option rather than just assuming you have to keep it.
5. Are you planning on moving abroad to get away from your debt?
Some people will use a move abroad as a way of getting away from their existing debt. They think it will remove the stress and by being out of the country it won’t matter anymore. My opinion here is that it’s a really bad idea for a few reasons, here’s why:
- Debt companies are more than capable of going international – just because you’re abroad doesn’t mean they can’t chase you. Sometimes companies in the country you’ve moved to can buy your debt and then they will chase you. Just consider a Russian debt agency banging at your door asking for cash. Doesn’t bare thinking about really.
- It’ll taint your record in your home country – Running away from debt is going to leave a black mark against your name. If you ever return to your original country then it’s unlikely things will be forgotten and, even if you’re not chased for the money, it could impact your credit score and ability to get credit.
- You could be trapped abroad – What if you get to the new country and things don’t work out. You’re homesick, you miss your family and you desperately want to go back. Wait a minute, you haven’t paid for your debt in 4 months. That’s going to be a tough welcome home when you get there and could cost you even more money. You’ll just be putting yourself in a really tight situation.
- Running away doesn’t fix things – No matter how appealing it may seem, running away from your debt isn’t going to solve the problem. It might make you feel better initially but that debt is always going to be there. If you want to live life with a clear conscience then don’t move abroad to get away from debt. Deal with it, then move abroad under more positive circumstances.
Please consider this seriously if you’re thinking about doing it. Just think about the short and long term implications that you’ll be committing yourself to.
I hope you’ve found some stuff in here that’ll help you with your decision and how you take things forward. Don’t let existing debt put you off your dream but be sensible about how you manage it and what your options are. You don’t want to ruin your dream by being slap dash early on and then paying for it later either financially, or through stress and worry. It’s better to put in the effort upfront so that you can sleep easy and enjoy things later on. It would be worth you checking out a couple of my other posts that might help with your research and fact finding. I’d recommend:
- Can I keep my bank account when I move abroad?
- Resources I wish I’d known about before moving abroad
- Finding an income when you move abroad – what are your options?
I’d love to hear your opinions on this, and perhaps what you’re planning to do with your existing debt. Any ideas could help others to sort out their move abroad. Just add your thoughts to the comments below. Happy moving Al