Expats In Better Position to Slash Their Debt

When you first move abroad it can be hard going to establish a credit rating with a new bank so that you can get your hands on the most favourable credit card deal, the best overdraft agreement or even the most attractive mortgage deal.  Some expats therefore prefer to continue their banking through their old bank back home, whilst others either sign up to what’s on offer abroad, or wait it out until their rating is better established.

Whichever option you take to getting credit and basically getting in debt will depend on your circumstances of course, however it always pays, (quite literally), to curb your debt.  This is because the more you borrow, (and don’t be fooled into thinking that an overdraft isn’t borrowing money from your bank), the more you will ultimately pay out in fees, charges and interest.

As expats, you’re actually in a slightly better position than your peers back home to slash your debt too, and in this article we’re going to show you the five key ways to shake off the shackles of money owed so that you’re debt free faster, and you get out of debt for less money.

Any loan you take out costs you money in the form of at least interest charges, if not in fees as well.  If you take on a credit card and you use the balance without paying it back in full each month, your outstanding balance is money borrowed from the credit card provider.  Some expats find that when they move abroad and open a new bank account that they can’t automatically have a credit card until they have a proven credit record.  Others find that they can have a credit card, but in reality it’s just a deferred debit card as the entire balance has to be cleared down each month.  So whether you prefer to continue using your old credit card, or wait out and get a new one from your new banking provider, you need to know how much any debt you accrue on that card will cost you.

Take a look at the APR, and not the headline APR either, the one buried in the small print!  This will tell you how much you’ll be paying on any debt you run up.

The same is applicable for any mortgage or loan you take, have a look at the fees you will incur for the arrangement of the loan, and take a look at the interest rate you will be charged.  Then, to work out how much your debt will cost you, take a look though your borrowing contract to find the sum that indicates the ‘total amount repayable.’  As the name suggests, this is the total amount that you will ultimately repay over the life of the loan…for most people this figure is far more tangible than looking at an interest rate percentage for example.

Now you know how much your debt will cost you, you need to know that there is a direct relationship between the following five factors when it comes to determining how expensive any debt will be.  By understanding the following information, you will soon see how you, as an expat, can slash your debt.  So, the cost of your loan is affected by: -

1) How much you borrow
2) The interest rate you agree to
3) The upfront and ongoing fees payable to the lender
4) How often you repay
5) The duration of the debt

Therefore , here are the five ways that you can slash your debt, and how expats are often in a better position to get ahead in terms of clearing down what they owe.

1)  Don’t Get into so Much Debt in the First Place!

As mentioned, it can be far harder for expats to get into debt, i.e., take out a loan or get a credit card when they move abroad as they do not have an established credit rating.  This has two effects on them, any debt they take on can cost more, but getting into debt is far harder.  So, you can take ‘advantage’ of this and prevent yourself from taking on too many loans or credit cards.  However, if you do determine that you need some form of cash advance, do not be tempted to borrow any more than you absolutely need.

You may be encouraged by lenders to borrow just a little more when taking out a loan so that you can treat yourself, or you may be offered a larger sum on a credit card than you feel you will ever need.  Do not be tempted to agree to these extensions of the credit you want…they will cost you more.

2)  Shop Around for Interest Rates

The lower the rate of interest you pay, the lower the total amount you will repay.  So, shop around when taking out a loan, a credit card or when taking on a mortgage.  As an expat you are in a better position because you may be able to shop around at home and abroad!

3)  Freeze Interest Rates/Consolidate Debt/Transfer Your Balance

You can give yourself an interest rate holiday on a credit card if you can do a balance transfer for example, and you can make all your debts more manageable if you roll them up into one consolidated debt payment.  However be warned that if you do transfer your credit card debt you could be liable for up front fees and you may end up with an even higher interest rate when it kicks back in.  What’s more, people often transfer to an interest free credit card with the intention of using the interest holiday to make larger payments and clear the debt faster, but in reality a lot of people end up using it as a payment holiday too.  Don’t be one of them!

As for consolidating debts, be careful – because it may seem a simpler option for you, but it is almost always a more expensive option as the underlying interest rate you now pay across all your loans and debts is far higher than what you were paying before.  What’s more, such consolidated loans are often secured on your property – not a good idea!

4)  Make Your Payments More Often

Don’t limit yourself to thinking you have to pay back your debt once a month, once a quarter or once a year.  Check the terms of your loan agreement, and if there is nothing stopping you, make payments more frequently.  For example, if you pay back an amount once a week it will psychologically seem like you’re paying less as the weekly amounts will be a smaller sum than a monthly figure, but in reality, if you ramp up that weekly amount just a notch, you’ll soon be chipping away at the debt far faster.  It’s really just a little trick you play on yourself, but it works very well and before you know it you will be seriously eroding your debt.

What’s more, as an expat if you’re paid any bonuses or you’re given any extra money each month for subsistence, use the extra cash to chip away at your debt.  The more often you pay and the more you pay, the quicker you’ll repay and the less interest you’ll incur…making your debt ultimately cheaper.

5)  Reduce the Length of the Loan

If you can force yourself to afford to pay back a debt over four years instead of five, or over twenty years instead of twenty five, that will be a huge saving in terms of the amount of interest you will pay for the ‘privilege’ of having a loan or mortgage in the first place.  The faster you repay, the less time the bank will have lent you the money for, therefore the less interest they will be able to charge you, therefore the cheaper the cost of the loan.

Use your expat tax advantages to pay back more each week/month/year so that the duration of your loan is less.  If you want to discuss your financial requirements and needs with an expat financial adviser, you can always .(JavaScript must be enabled to view this email address) and we’ll help you find an adviser who can assist.