Moving Abroad with Credit Card Debt

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‘Get out of jail free’ cards are rare in life, and often these ”cards” have consequences.  When credit card debt starts piling up, it could be tempting to just pack your bags and move to a different country in an effort to make these problems just disappear.  Though this sounds somewhat feasible at first glance, when put into practice road blocks and negative repercussions abound. As always, there is no such thing as a truly free lunch.  

So say that you take credit card flipping one step too far, and have find yourself in serious debt.  What are some possible consequences of trying to move out of the country to avoid paying all this debt off?  The first obstacle is that you may find it difficult to legally establish residency in another country. Proof of a steady income is required to apply for residency, something that could be difficult for someone who has needed to supplement their income with credit cards.  It’s not likely that they have have been investing in foreign businesses or real estate to allow for an easy proof of steady income in that country.

Your Credit Card Debt Won’t Disappear

If your steady income is located in the same country where your credit card debt is located, then this could be an issue. After your credit card payment terms reach a certain point a lawsuit may be filed and any income or bank accounts you have may be at risk of being seized by debt collectors to pay back your debt.  Your wages may be garnished for an extended period of time as you pay back what you owe. As well any savings, property or anything else that could be considered an asset could become a target, being sold to pay off your debts. So if your goal in moving abroad is to leave that debt behind and start anew, you may need to cut all your financial ties with that original country, including selling off all assets.   

It Will Negatively Impact Your Credit Score in the United States

If you let all your debt go into collections or charge off, it will have a significantly negative impact on your credit score.  Luckily your credit score does not move with you when you move to another country. It is expensive for companies and government agencies to request your foreign credit report, so they often don’t.  This means you basically have a chance to restart your credit. This could either be good or bad news. It is good news if you just left a bad credit situation in the previous country. It is bad news if you previously had good credit but now have to spend several years building up your credit.  

Debt Collectors May Not Seek Payment While You’re Abroad

The cost of legal action across international borders often makes it not cost-effective for debt collectors to seek retribution for your debts.  So this is a potential big win for you in your attempt to escape the clutches of debt. Even if your debt is upwards of $30,000 it may not be worth it to your creditors to come after you.  First, tracking someone down after they moved abroad, and then attempting to seek appropriate legal action in accordance to the local laws, is a very costly endeavor that is not guaranteed to show results. Every country has different laws regarding debt collection, and just how far debt collectors can go in seeking retribution for sour loans. It will be very useful to learn how to read an credit report, to track what is happening with your various debts, and in what stages litigation could possibly be in. 

The IRS Could Come After You

The IRS has a good chance of getting involved as well, since the government isn’t about to let you have a free lunch.  If any debt is ‘forgiven’ or you make a settlement with the credit card company resulting in some debt being forgiven, then this money–which is essentially free money to you–is seen as income by the federal government, and hence is taxable.  So after your entanglement with the credit card companies/debt collection is finished, the fight with the IRS could start.

So this ‘get out of jail free’ card could be plausible, but only if you are willing to submit yourself to living with certain irreversible consequences.  For starters, your credit score will go down the toilet if you decide to not pay your bills and move abroad. Credit card companies could decide to freeze your account, waiting for you to move back to start litigation.  If the credit card company ends up declaring a charge-off then the IRS may be next in line knocking on your door.

Never Come Back to the United States or You’ll Have to Pay

So if you decide to ditch town (or in this case ditch the country) in order to avoid paying back your debt, you may have to fully commit to never coming back.  Or else you will have to deal with destroyed credit, possible legal action from a range of companies, and the federal government trying to collect past-due taxes. In the end it is probably much easier, and less stressful to just establish a good budget now, practice good financial self control, and if you are in debt, work to pay it off fully and as fast as you can.  Though if you’re still not convinced you can join the estimated 2,500 people who decide to move abroad every month leaving behind credit card debt. Weigh your options carefully, don’t make this a hasty decision, seek council and talk to professionals about your options before you start booking those oversea flights.