Have you, for some inexplicable reason, recently had the urge to move abroad? But what if you have credit card debt? Or any debt, for that matter. If you’re considering moving out of the United States, there are a few things to consider when it comes to your credit and debts.
Do Other Countries Have Credit Scores?
Credit scoring models and regulations differ country to country. So, while your U.S. credit score is dependent on factors such as payment history, amounts owed, length of credit history, credit mix and new credit, your credit score in another country may not.
Let’s take a look at our closest neighbors, for example.
Canada
Canada operates similarly to the U.S. when it comes to credit scores. So, if you decide to move to the Great White North, you’ll be familiar with how the process works. Two out of the three major credit bureaus (Equifax and TransUnion) operate in Canada, and scores range from 300 to 900. According to Equifax, Canadian credit scores are calculated using the following factors:
— Payment history: 35%
— Used credit vs. available credit: 30%
— Credit history: 15%
— Credit mix: 10%
— Inquiries: 10%
Mexico
If you decide to go south, you’ll encounter the Buró de Crédito in Mexico. It’s the country’s official credit bureau and tracks consumer credit information. However, another bureau — Círculo de Crédito — is gaining popularity. First introduced in Mexico in 2014, Círculo de Crédito is partnered with FICO and uses FICO scoring models to determine creditworthiness.
What Happens to Your Credit When You Move?
There’s good news and bad news. The good news is there’s no law that says you can’t move to another country even if you have debt in the U.S. This includes anything in collections, as well. The bad news is you are contractually obligated to pay that debt, regardless of where you live.
You might be thinking to yourself, “Well, that’s all well and good because I don’t plan to pay anyone back, anyway. I’m starting a new life on a Mexican beach somewhere.” Again, you can choose to go that route. But it most likely won’t end well.
[Read: Best Balance Transfer Cards]
Risks of Moving Abroad With Unpaid Credit Card Debt
Credit issuers can attempt to collect a debt up to 180 days after a missed payment before they charge off the account and send it to a debt collection agency. Then these agencies can hound you for years.
Moving to another country can certainly make it more difficult for collectors to track you down but not impossible. And you’ll have to deal with the fallout, including:
— Your U.S. credit score will take a hit. This may be obvious, but if you plan to return to the U.S., just know your credit score might be in shambles when you do.
— You’ll have to pay taxes on canceled debt. If your debt is canceled, forgiven or settled, the IRS can still come after you — regardless of where you live. You could be slapped with a large tax bill since the IRS categorizes this kind of debt as income, which means you have to file taxes on it.
— Your creditors may sue you. If your creditors are fed up enough, they can sue you for any unpaid debt. If you left nothing behind when you moved, then the courts can’t do much. However, if you have U.S.-based assets — like property or savings — a creditor can garnish those assets.
[Read: Best Debt Consolidation Loans.]
How to Manage Your Credit Card Debt Before Moving
If you’re thinking about moving out of the United States but worried about your credit card debt, here are a few ways you can get it under control before you move:
— Apply for a loan. Debt consolidation loans offer a structured repayment plan, spanning anywhere from a few months to a few years. Loans are a better option if you have a large amount of debt.
— Apply for a balance transfer credit card. A balance transfer credit card is a good option if you have a lower balance and plan to pay it off within the card’s interest-free period, which is usually 12 to 21 months.
— Employ debt payoff strategies. Tackle your debt by using tried and true methods like the debt snowball method or the debt avalanche method. Depending on the size of the debt and your financial situation, there are different methods you can use to lower your credit card debt before moving out of the country.
More from U.S. News
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What Happens to Your Credit if You Move to Another Country? originally appeared on usnews.com
