How to manage your debts as an expat

As an expat, the chances are that you moved to your new country to get away from the pressures of modern life. Perhaps you were working too many hours in the city and never got time to spend with your loved ones, or maybe you couldn’t find a company that could put your skills to the test and reimburse you accordingly. The reasons expats move are endless.

However, it’s unlikely that you decided to up sticks and move halfway around the world because of debt. Whether you originate from the UK or the Middle East, it’s impossible to “run away” from your financial problems - and likewise, it’s impossible to move to another country and accrue endless credit without having to repay it and get your finances in order.

Though we can’t offer financial guidance on your individual circumstances, we can give you some practical tips on how to manage your debt as an expat, and avoid the psychological and physical repercussions of owing the banks (as well as businesses and friends) money…

What to think about before moving

Making the numbers add up

Moving to a new country can be incredibly expensive, and unless you’ve been able to save up hundreds of thousands of dollars, you’ll likely need to accrue at least some debts when you move abroad. Indeed, you’ll probably want to apply for a mortgage, finance on a car, and when starting a business, a business loan or investment might also be required.

But before you do, use a financial management tool (or create a good old spreadsheet) and identify your expected income and expenses. Those figures are likely to be very different from your previous life in the UK (no gym memberships, council tax or national insurance, but perhaps upkeep on a pool, private medical insurance, and a retirement plan).

It sounds obvious, but your income must be higher than your expenses - if it’s not, you’ll need to reassess your situation, such as choosing a cheaper rental apartment or working more hours in a new job to make the figures add up. Doing this before you move will help to determine the legitimacy of your new life before you make an expensive mistake in moving.

Transferring money

Something else you should take into consideration when moving from one country to another is your assets and savings, and deciding whether or not you want those to be relocated to your new country of residence. Of course, you’ll need to open a bank account and you can use a low-cost currency exchange service, but for everyday expenses such as a mortgage on a buy-to-let back at home or insurance, small bank exchange charges quickly add up.

Find a low-cost remittance service or consider moving all of your assets from one country to another to keep everything in one currency, or use an off-shore bank account to reduce your expenses. Knowing that you have a savings pot to turn to should you need an extra boost will give you peace of mind and dissuade you from applying for third-party finance overseas.

Planning for the future

See also: Why you should invest your pension pot as an expat

Planning for your future as an expat is a necessity.

Rather than blowing all of your savings on a new house or a fancy car, consider whether you’ll get value out of your purchases and be frugal. This is even more important if you’re moving to a country with a stronger currency than your own (from the UK to the USA, for example), as your existing savings and assets will be worth less than they were at home.

Think about everything from life insurance policies to retirement funds to investment opportunities and remember to consider the risk. Don’t put all of your eggs into one basket; be sensible and decide whether an investment makes sense before you splash the cash.

Dealing with debts abroad as an expat

Prioritise

If you can’t clear your debts before you move abroad, make a list of everything you owe to whom and prioritise in order of importance.

Debts with high-interest rates or late payment fines should be at the top of the list, as the sooner they’re paid off, the quicker you’ll be able to reduce your debt pile and become financially sound.

Once you’ve prioritised your debts, put together a repayment schedule and stick to it.

Set up reminders and direct debits to ensure payments leave your bank account on the right dates. The sooner it goes out after it comes in, the less likely you are to be tempted to spend it, so setting up a dedicated “Pot” or debt bank account could be an option to consider.

And a word of advice: burying your head in the sand over your debts won’t help - in fact, it will only make things worse. Arrange a meeting with a loved one to discuss your situation so they’re aware of the pressure you’re under. A problem shared is truly a problem halved.

Be disciplined

If you find that you’re struggling to make ends meet month to month without relying on credit cards, loans and overdrafts to cover your living costs, then note that this is not a sustainable way of living and that changes must be made in order to return to good financial health.

Identify expenses, categorise them into essential and optional, and remove anything optional (think Netflix, takeaways and gym memberships) until you have a better hold on your debts.

And for everyday basics, such as food, accommodation, and transport, look out for free and cheaper alternatives, such as living with your new expat friends or opting for basic food in a supermarket rather than having home comforts flown in from your native country. You’ll have to make major sacrifices and it may be uncomfortable temporarily, but it will be worth it.

Consolidate

Another way to manage your debt is to look into consolidation, where you’ll combine your debts such as loans and credit cards into a single monthly payment.

For those with multiple lines of credit, this can help to reduce the administrative burden and help you see your debts as one big chunk, rather than several smaller payments.

You’ll owe $1,000 per month rather than owing $100 to one company for your furniture, $500 to another for your car repayments, and $400 to the bank for a personal loan.

Shop around for 0% credit cards in your new country or indeed your native country if you still have a physical address there, and remember that you must inform all of your lenders that you’re now living in another country.

Merging debts is popular in developed nations like the UK, the US, and Australia and support is available locally, though remember currency exchange rates before agreeing to consolidation, especially if you have debts in your new country and your country of origin.

Ban yourself from credit

Credit cards can be incredibly tempting and convenient.

However, if you’re struggling to pay off your debts as an expat or you’re on a low income, you should cut up your credit cards or put them in the freezer in a block of ice, and make sure you remove them from your autofill to avoid those late-night internet shopping splurges.

The more difficult it is for you to access credit lines, the less likely you are to use them.

Use savings

If you’re sitting on savings, assess interest rates and consider paying off your debts early.

The chances are the interest rate on your credit card is much higher than it is on your personal savings account, so you’re paying more for what you owe than you’re earning on what you have. Therefore, it makes sense to clear your debts and then rebuild your savings.

As an expat, you’ll likely want to hold onto a “buffer” should something go wrong (whether a problem with your house or a family emergency back in your home country), but keep that figure relatively small and pour everything else you’re sitting on into repaying your loans.

Insurance

If you’re moving to live abroad for a short period of time, perhaps to live with family or to study, then travel insurance policies can be useful. Make sure you buy a policy that’s valid for the entire duration of your trip and check that it covers everything from losing a passport to illnesses, accidents, and death. Always read the fine print and speak with a broker if you are not 100% confident you’ve selected the right insurance - it’s better to be safe than sorry.

For existing insurance policies such as life insurance, mortgage protection, and income protection insurance, make sure that they’ll be valid in your new country of residence before you move and update them if necessary. Failing to do so could be a very expensive mistake.

Wrapping up

Debt can take its toll on anyone, but as an expat living in a country far from home (and far from the banks that offered you those credit cards and loans), it can feel overwhelming when thinking about paying off everything you owe. But the truth is, the sooner you assess your current financial situation and start making headway towards paying off your debt, the better.

Be disciplined and rely on good financial advisers for support. And above all else, remember that you will get out of your debt. It might not be easy and you might have to make unwanted sacrifices, but the relief you’ll feel when it’s done will be worth its weight in gold. Good luck!