Paying Off Debt OVerseas - The Oppurtunities
Paying Off Debt Overseas - The Opportunities
The United States, the United Kingdom, Switzerland, Denmark, Canada, South Korea. What do they all have in common? Stunning amounts of personal debt. They are all in the top 10 countries in the world with the USA coming in at number 10, and Switzerland winning the dubious distinction of being number one.
Some might argue that not all debt is bad debt, and that some debt is in fact good debt, but when push comes to shove, the best debt is no debt.
If you're living overseas with debt that'd you'd rather not have, or considering moving overseas in an effort to reduce debt there are a number of options available to you.
A lot of the advice that you will find online talking about paying off debt focuses on reducing expenses because that's generally where we have the most control. The same applies overseas, however there are a number of obstacles and opportunities that are different when you're an expat. First let's look at the opportunities.
The Good News About Paying Off Debt Overseas
Lower Cost of Living
There is the potential of living at a significantly lower monthly cost then you might pay in the United States, EU, or UK. Street food, buses, entertainment and utilities generally cost a lot less in the developing world. The cost of eating out is often nearly the same or in some cases less than if you prepare you own meals, provided you are willing and able to eat local fare.
Reduced Tax Burden
Having a reduced tax burden through the foreign income exclusion is an automatic win for expats. If you are the resident of a foreign country and outside of your home country (outside of the United States for 300 days a year, or outside the UK for 350 days a year, you can qualify (note: I'm not a tax expert, you should consult with a tax expert, seriously). However, be sure to know the restrictions and discuss this strategy with a tax professional that has expertise in this area. Basically this means you keep more of the money you earn.
Lower Housing Costs
One key way to lower your costs is to rent a house at a monthly rate lower than what you'd pay in your home country, or alternately housing can be included as part of the compensation package offered by your employer. Either option can be beneficial, however a total elimination of your housing cost is clearly the ideal.
This option is technically available whether you live overseas or continue to reside right where you're at. Making decisions to simplify your lifestyle can be made anywhere, but it is often easier to do this when you're making a move overseas.
A new living situation, a new group of friends, a new job mean you have the opportunity to reset to a new normal. Part of this is often due to reduced options, part of it is due to reduced convenience. When shopping for a new phone case involves a 60 minute trip to the local mall, you’re a lot less likely to buy new phone case. When your friends from work are going out for a $2 fresh fruit smoothie after work instead of three $8 beers, there are obviously savings. If your daily Starbucks macchiato habit is replaced by a daily cup of pour-over coffee from a local provider, that creates savings. Buying a new pair of jeans?
You may need to wait until you can get back to your home country.
Technically you could make those same changes in your home country, however it is easier when the convenience is removed and you are given the opportunity to make intentional choices about how you are going to spend your money.
For a lot of Americans, the cycle of buy/lease a new car, make installments for 3 years and then trade it in for a brand new vehicle is a normal treadmill of debt. They never end up free and clear of a car payment, and don’t realize how much of their monthly expense is going toward interest. Living overseas provides a different set of transportation options. Scooters (small motorcycles) are often the vehicle of choice for families of less than 5 people, and many living in large cities don't own their own vehicles at all. The public transportation, both formal (bus system, subway, trains) and informal (Uber, Grab, Didi, Lyft, Hailo, Gett, rickshaws, becak, or anyone with a motorcycle scooter who is bored) can replace your vehicle. Increasingly, electric bicycles and electric scooters are becoming a viable option for people who want a little more independence but want to avoid the taxes and storage problems that come with a full size motorcycle scooter, but also want to avoid the incredible amounts of sweat that come from trying to walk or cycle around South East Asia!
If you check any number of websites trying to help people eliminate their debt burden, you'll find that eating out is definitely forbidden (or at least strongly discouraged). This is because the cost of eating out is generally 2-4 times the cost of preparing the food yourself. You're paying for convenience, ambiance, food quality and secret sauces. Clearly it is cheaper to make the food yourself. However that rule doesn't necessarily hold true overseas. In a lot of cases it's basically the same cost to eat out as it is to make the food yourself. The low labor and rent prices mean that prepared food is often sold with a minor markup, provided that you're eating local, and not frequenting high end restaurants.
All other things being equal, no dishes, no cleanup and many restaurants are able to deliver (or a delivery service will pick up food for you for a nominal fee). It's a good deal, but options are often limited by local taste. In some places such as Malaysia there is a wide culinary influence, but that is not guaranteed everywhere, plus there are health considerations to make as local foods will vary from extremely nutritious to "heart attack on a plate."
One area of savings that's often not considered is insurance costs. For health insurance, you can find anything from 100% coverage outside of your home country to catastrophic insurance only at a relatively low rate. For many this is sufficient given that the medical care is really only going to be sought out in emergency cases. Outside of the United States medical care is often available at a fraction of the price, albeit often at a lower quality. (Singapore, Kuala Lumpur and Thailand are exceptions to that general statement.) Identifying quality medical care in your region is important, as well as having a plan suited to your particular situation, but regardless, this price is often much lower than U.S. prices.
Also, many countries do not require auto insurance. This can be risky, however many expats chose to self-insure, meaning that they are willing to undertake the financial risks associated with owning and operating a motor vehicle. Again, seek out insurance that coincides with your particular circumstances.
Extremely Low Prices on High-End Services
In the West, generally speaking, regularly getting massages, manicures, pedicures, facials, haircuts, maid service, a chauffeur, a personal trainer and a personal shopper are all reserved for those who are extremely wealthy. Not so overseas, particularly in Asia and South East Asia. Additionally services such as private music lessons, art lessons, tennis lessons, martial arts lessons, language lessons, private tutors and educators, surfing and scuba diving lessons, photography sessions and even mechanics who come to your house (amazing!) are often available. However, in many parts of Asia these services are available at incredibly low rates in developing countries where services are often available at a stunningly low rate, but a high premium is paid for physical objects (vehicles, electronics, household appliances). Not all of these services are essential, however they are some of the perks that come with living overseas. Be wary to work with trusted individuals who come highly recommended as this is a "buyer beware" arena, and there can be a number of hidden costs and at times unscrupulous service providers. These costs can compound quickly, but it's also a unique opportunity afforded by living overseas!
Low Prices on Exotic Vacations
One of the great parts of living abroad is a new range of vacation options that are a quick plane ride away. In South East Asia there are a wide range of vacation destinations that are a half-days flight away. Places like Bali, Hong Kong, Thailand, Vietnam, Singapore, Malaysia, even Australia and Japan are all accessible. Budget airlines like Air Asia, Lion Air or CityLink provide easy access to major (and minor) airports. Three-day weekend? A half-dozen countries are within reach. The variation in culture, geography, and culinary art is amazing. These trips may not help you pay down your debt, but they can help you keep sane and help you thrive in your new country.
The Bottom Line
Living overseas provides great opportunities to get out of debt. Lower cost of living coupled with high earning potential create a unique situation that can be used to improve your financial situation. Living overseas isn't a guaranteed win though, there are a lot of potential pitfalls and many expats can end up in significant debt if they aren't careful.
But more on that later…