Millennial Money: Paying debt back home vexes expats
A close friend recently told me: “If I’d waited two years, my education would have cost half as much.”
Not because she would have chosen a different graduate program or qualified for more scholarships. But because the value of the local currency dropped.
She’s an American expat who works in Cape Town, South Africa, and is paid in rand. The exchange rate was 7 rand to 1 U.S. dollar when she took out federal student loans to pay for a master’s program, but it later fell to 14 rand to the dollar. So, now that she’s repaying those loans, her money is worth half as much.
An estimated 9 million Americans live abroad, not counting military service members, according to the State Department. If you dream of being one of them, debt obligations back home don’t have to stop you, but they can make things more complicated.
Currency fluctuations are just one obstacle you’ll have to navigate. Wire transfers, time differences and limited access to financial services in the U.S. can also make it a pain to pay debt as an expat. And where you move, how you’re paid and to whom you owe money can have a big impact on how convenient it is to deal with debt.
Dollar, dollar bills, y’all
Maya McCoy has lived abroad for nine years, first in the Philippines and now in Singapore. In that time, the Los Angeles native has paid off roughly $70,000 in student loans and handled two U.S. mortgages.
Her first job split her pay, so she earned half her salary in Philippine pesos, deposited into her local bank account. The other half was in U.S. dollars, deposited into a bank account she kept in the States, which she used to pay U.S. creditors.
This payment arrangement meant McCoy could largely avoid the arduous task of sending money back to America, which at the time was an hours-long affair.
Location, location, location
The ability to easily (and affordably) transfer money to U.S. bank accounts can vary from country to country.
“In Philippines, everything was paper,” McCoy says. You had to “take a number, have a seat, wait for the maybe one person in the whole bank who deals with these sorts of transactions.”
Now, in Singapore, “I don’t even have to leave my house.”
The value and stability of the currency can also vary. Currencies in countries like Singapore, Canada and Australia have remained relatively stable over the past 10 years.
That makes it easier for expats earning in the local currency. Their money is always more or less worth the same, so there’s less need to obsess over exchange rates.
That’s not the case in places like South Africa, Norway or Brazil, where the value of local currency against the U.S. dollar has dropped considerably over the past decade.
Fees add up
Wire transfers through a bank can be expensive, especially if you’re transferring a small amount each month. The median fee for outgoing international transfers is $45, according to a NerdWallet analysis . And you get dinged when you receive the transfer into your U.S. account, too. So it’s not uncommon for expats to transfer a large sum every few months.
Neil Walsh worked in Japan between 2006 and 2010. During that time he’d transfer $1,500 to $2,500 at a time to meet financial obligations back home, including $50,000 in student loan debt.
“The yen goes up and down, so you kind of have to time it right,” Walsh says.
Sometimes the timing was off and he’d have to miss a payment and double up the next month.
“It’s a logistics game. You have to think about it a lot.”
There are cheaper transfer services available. Some are country specific, like Knightsbridge in Canada. Others, like TransferWise, XE and OFX are available in multiple countries, but even they aren’t available everywhere.
Not really worldwide
Accessing your financial accounts while abroad can be frustrating at best and impossible at worst. McCoy learned this the hard way.
One of her U.S. mortgages was through Green Tree Servicing, whose website wasn’t accessible overseas.
“I would call them and say, ‘www stands for World Wide Web – why can’t I look at this outside of the U.S.?’ And they would just say ‘sorry, we can’t help you,’” McCoy says, noting that company also wouldn’t send her mail overseas, which is true for a lot of companies. To cope, McCoy used a proxy server to hide her location and log in to her account while overseas.
She also handles as much as she can when she’s back in the States.
“My mailbox is insane,” she says. “I only go home about once every six months, and when I do I have piles of mail waiting for me.”