Disclaimer: These are my personal opinions and experiences. Experiences will differ from person to person. This post also may contain external links for informational purposes only.
Everyone has their reason to move abroad: learning a language, just for the experience, love, or simply graduating and not knowing what to do with your life. Regardless of the reason, if you are moving abroad and still have debt, there are a few things you might want to consider before doing so.
Here are 5 things you want to consider before taking that leap to move abroad while still having debt(s) based on my current, personal experience with living abroad while still being in debt:
5. The Type and Amount of Debt:
Think about the type of debt you have and how much it is.
Can this debt be paid off with money from your account in your home country or will you have to transfer money back home to make payments?
If you will have to send money back home to make payments, which will most likely be the case, do your research beforehand to find out how to do so and if there are any other steps you can take to make the process easier or more effective, such as setting up a bank account with a lower remittance (overseas transfer) rate or finding out what information you’ll need to set up your remittance account. As I explained in a previous post, banking can sometimes be complicated, especially when there is a language barrier. By having as much information as you can before the account setup, you will have a lot of time and potential frustration.
My Experience: When moving to South Korea, I had approximately $45,000 in student loan debt from graduate school and needed to figure out how I was going to transfer money back to the U.S. to make payments. Luckily, my co-teacher took me to set up a bank account the day I arrived, but because I didn’t have the information I needed to set up my remittance account, I had to wait until my next weekday off to go to the bank and set up the account. I didn’t end up setting my remittance account up until about 4 months into my contract, which meant the money was coming out of my emergency savings account in the U.S. I don’t have a very high financial risk tolerance (I’ll talk about this later in this post.), and not having as big of a financial safety net makes me very anxious.
4. Understand Your Relationship with Money:
This tip can be useful when moving abroad or staying in your home country.
One of the most important things you need to understand is your relationship with money.
How do you spend it? Why do you spend it? What do you feel when you spend it and why? What do you spend the most on and why? Are you the type that likes to travel, party, and eat at restaurants frequently, or are you ok with staying in most days/nights?
These questions will help you understand your connection and reliance on money. They will help to create your personal budget. Yeah, I know. I’m surprised the word itself doesn’t have its own horror movie yet, but the reality is that you’ll need to start budgeting if you want to stay on track to pay down/off your debts while abroad. Living abroad is fun and exciting, and it’s INCREDIBLY easy to spend way too much on a night out. So, if you haven’t begun budgeting, there’s no better time to start than today.
My Experience: I have never been the type to budget. I remember getting really into financial kicks and attempting to budget to save more money, but it never really stuck because I never felt like I needed to budget. I had everything I needed and didn’t think I would have difficulty keeping up with my lifestyle and payments once I graduated because of the degree I was pursuing. Little did I know that my next decision would be to take a break from programming and research to achieve one of my life-long dreams of living abroad and my next job would be in South Korea as an English as a Foreign Language (EFL) teacher. I made about the same money as my previous job, my housing was paid for, and I was making enough money to send home to make my payments, so I didn’t think much about budgeting. I was doing great until I started building a social group.
Don’t get me wrong. Having a social group is a necessity while living abroad, even if it’s only a couple of people, but everyone in the group has their own financial backgrounds and challenges/freedoms. I remember going out to the bars every weekend because that’s where my social group hung out, and drinks + bar food can add up very quickly… Especially if you miss the last train and have to wait until 5:30 am for the next one because you don’t want to pay for a taxi… Just saying. Anyway, that type of lifestyle, along with bills, transportation, and food costs, quickly adds up. So, make sure you understand why you’re spending your money before you do. Make sure it’s adding more value than anxiety to your life. You should make sure people in your social group understands and supports you in your financial decisions. Trust me, if you don’t have a group of friends that encourage you rather than bring you down in such an unfamiliar environment, it can be difficult for some not to fall victim to peer pressure.
3. Location vs. Salary:
It’s a well-known fact that living in the city is much more expensive in larger cities than in the country-side. That being said, something you need to consider is the cost of living in the country/city you want to move to, how much you’re going to be paid, and how that will affect your payments (if you’re making payments while overseas). The bottom line is: will your cost of living be equal to or more than your income?
If you’re going to be making payments on debts while abroad, do some research on the cost of living for different cities and see if it fits into your budget.
2. The Exchange Rate:
A key thing to remember is that the value of money in one country is not always the same in another. Make sure you check the exchange rate for the country you’re thinking about moving to and your home country. Do an estimate of how much you’ll be making per month in the country’s currency and see how much it equals in your home country. Below is an example of the exchange rate from Korean Won to USD during my time in South Korea.
Korean Won to U.S. Dollar Exchange Rate (Oct. 13, 2019)
Better yet, if you’re making payments, compare your payment amount in your home currency with how much it will be in the foreign country’s currency. That way you can see approximately how much will be used from your paycheck (plus transfer fees) to pay toward your debt(s) each month. This will also give you a better idea of how much money you’ll be able to allocate toward different budget items per month.
My Student Loan Payment Amount per Month in USD and South Korean Won
Let’s take my current situation for example, I have the standard payment plan for my student loans where you pay the same amount of money over a number of years. Looking at the first image above, you can see that for every 1,000 Won (equivalent to the $1.00 bill) I only receive $0.84. Unfortunately, it’s not an even trade-off, so I have to send in more of my paycheck to equal the amount in USD I will have to pay per month.
In the second image, I checked how much Won I would have to transfer to my U.S. account to make my $508.00 student loan payment. As you can see, I must send in about 602,000 Won to make my payment (not including transfer fees).
I currently make approximately 1.7 million Won per month after taxes, insurance, etc. is taken out of my paycheck. If you subtract the 622,000 Won (approximate transfer fees included) I need to transfer for my payment, it leaves me with about 1,078,000 Won to budget out for all of my living expenses (electric, gas, phone, groceries, etc.) and whatever else I plan to do until I get paid again. If you are planning to make payments on debt while overseas, the exchange rate is something you must think about. I didn’t realize how much of an impact the exchange rate had until I experienced it for myself.
1. Your Financial Risk Tolerance:
This is probably the most important thing on this list. Before deciding to move abroad with debt, understand your financial risk tolerance. This term is normally seen in the investing world, but here we are talking about it in terms of “How much money do you need before you begin to panic?” Are you ok with living paycheck to paycheck or does the lack of a financial buffer in your bank account make you anxious? Are you ok with only paying the minimum or nothing at all on your debts? I know people who choose to put a hold on their loan payments instead of paying them, and they are completely ok with that. And then there are people like me who want to pay off debts as soon as possible, even if it means giving up luxuries like $5 coffees or going out to eat a couple of nights per week.
How will this level of tolerance affect the decisions you make while you’re living abroad?
I’m not discouraging anyone from living abroad. This has been one of the most wonderful and life-changing experiences, but knowing where you stand when it comes to financial situations is an important part of the journey.
My Experience: Unfortunately for me, I am the opposite of the friends I mentioned above. I have always been on-edge when it comes to my finances, and I panic if I have less than $2,000 in my savings account at all times. I know that is actually WAY below what you’re supposed to have, but it’s what I have since I had to wait 4 months to set up my remittance account and still pay on my student loans. Add on the thousands of dollars in debt and the ability to only pay off about $500 per month (almost 1/4 of that going to accrued interest), I’m in a financial panic most of the time. Because I have such a low financial risk tolerance and get very anxious when I don’t have a buffer, it affects my lifestyle a bit. I don’t go on as many trips as I would like, and I don’t go out as much as I would like in general because I want to save my money to pay off my loans quicker. Don’t get me wrong, I’m not a hermit that just stays in my apartment all day every day, but I have made some changes to my lifestyle to try to save more, not only for my financial life but also my mental health.
As I mentioned before, I am not discouraging anyone from living abroad. I just want you to understand where your mindset is with finances. I thought I had everything figured out until I experienced it. Being able to prepare and understand yourself in advance will help with the whirlwind of a transition living abroad is, especially if it’s your first time living abroad.
Key Takeaways:
- If you haven’t learned to budget, start now. From personal experience, I can tell you that it is incredibly easy to be swept away by the new lifestyle and events happening, and it is incredibly easy to overspend.
- Research exchange rates for countries you’re thinking about moving to and how much you will have to send back compared to your estimated cost of living.
- Define where you are on the financial risk tolerance scale and prepare.
If you have any suggestions on how to financially or mentally prepare before moving abroad or want to share your experience, please comment below!
