Managing Debt

Can You Escape Your Debt by Moving Overseas?

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If you’re up to your eyeballs in debt and can’t see a way out, the idea of moving to another country and ditching your debts may be very appealing. Kathleen Peddicord, publisher of “Live and Invest Overseas”, says she’s met many people in that situation over the years.

“I meet them in Panama, Ecuador, Belize. Their financial lives got away with them. They were upside down on rental properties. Their credit card debt became overwhelming.”

But while she says relocating abroad can be a successful strategy for getting out of debt (more about how to do that in a moment), she also warns that, “It’s probably not the cure-all that people think it might be.” Financial problems don’t simply disappear. “It’s not an Etch A Sketch,” she says.

Here are three pitfalls you may encounter when trying to dodge your debts in another country.

1. You Gotta Have Cash

Relocating to a foreign country isn’t as simple as buying a plane ticket and packing your suitcase. In addition to the expenses you’ll incur, such as housing, you’ll also want to secure residency in that country if you hope to remain there for a long period of time.

Big picture, there are two main ways to establish residency in another country, and they both require income, cash or both, explains Peddicord.

1. Show that you have a reliable source of monthly income (i.e. retiree programs). Here, you need to demonstrate that you have a guaranteed monthly income that meets the country’s minimum income requirement. For many retirees, that means providing their Social Security statement, though that’s not the only type of income that’s acceptable. Under these programs, “As long as you can show the retirement income then you are fine,” she says.

2. Make an investment in that country. You can essentially “buy” your way into establishing residency with an investment in a business or real estate. Peddicord says some countries allow a rather small investment — $30,000 can help you establish residency in Colombia, for example. “All they care about is that you have the cash,” she says.

The challenge here is that if you are drowning in debt you may not have cash to plunk down to buy a business or a home. But if you are drawing guaranteed income from Social Security or another source, then you may be able to use that to establish your residency. The good news is that a credit review will not be part of the process, Peddicord says. So even if you filed for bankruptcy recently, that won’t hurt your prospects.

2. You May Have to Stick With Cash

Do you pull out your credit cards whenever money gets tight? You need to realize you may have to start becoming a much better budgeter overseas.

If you think establishing or re-establishing your credit in the U.S. can be tough, it’s nothing compared to the process in some other countries. Whether it’s a credit card, auto loan or mortgage, lenders are not as generous or quick to extend credit as they are in the U.S., Peddicord says. “It’s not easy or possible to get credit limits like you will in the states. That’s very uncommon in other parts of the world,” she says.

And building a credit history overseas can be an arduous process. Peddicord says that she and her husband have worked hard to maintain their credit history in the U.S. “When we left the U.S. 17 years ago, we both determined to maintain our U.S. credit lives and remain fully compliant as taxpayers,” she says. “We still have a U.S. credit history and we take it very seriously.” (You can find out whether your credit is strong by checking your credit score for free at Doing so doesn’t affect your credit scores.)

3. Taxes May Catch Up With You

Even if your creditors don’t chase you down to try to get you to pay your debts, the IRS will expect you to continue to file tax returns and pay what you owe them. And if you leave the U.S. with unpaid debts, eventually those balances will be written off and the creditors will likely file a 1099-C form with the IRS reporting unpaid amounts of $600 or more as “income.” The IRS will expect you to pay taxes on that phantom “income” unless you can demonstrate that you qualify for an exception or exclusion. (Here are the main ways you can avoid paying taxes on cancellation of indebtedness income.) “The IRS has longer arms all the time,” Peddicord warns.

How to Make It Work

There is a way to make this scenario work: become an expat in a country where the cost of living is low, continue to work, and plow your earnings into paying back your debt. If you have a business or even a job that you can do anywhere in the world (online businesses are particularly suitable), you can continue to work in a country with a low cost of living, where even a modest income can go a long way. “That can be a really smart strategy,” Peddicord says.

You can get a free list of countries with the lowest cost of living on the website, and you can listen to this podcast where I interviewed her about the cheapest places to retire overseas.

That’s how Catherine Alford got out of debt. Though she relocated abroad to be near her husband while he was attending medical school in the Caribbean, she discovered that the cost of living in Grenada was so low that she was able to make major strides toward becoming debt-free.

Before moving, “I was really nervous about my debt,” she says. She had a blog that was a “hobby,” and she used it as her portfolio to get freelance writing work. And after a year overseas, she picked up a job teaching English for two years. She was able to pay off $6000 in debt in eighteen months, and now her blog, and freelance writing income allows her to be self-employed while raising twins.

“You don’t have malls, you don’t have fancy things,” she says. “The entire lifestyle made it possible to pay off debt,” she says.

More on Managing Debt:

Image: blyjak

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Gerri Detweiler

    Yes but if you stay away long enough the statute of limitations may expire. However, if they are able to get a judgment in your absence that would probably await you if you returned to the US.

  • lostpoet

    most debt collectors dont have the resources to search for you outside the US,, and having to go thru the other countries`system and languge to

    try and “get” you.. i know this first hand

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