You’re probably going to die with
some debt to your name. Most people do.
In fact, 73% of consumers had
outstanding debt when they were reported as dead, according to December 2016
data provided to Credit.com by credit bureau Experian. Those consumers carried
an average total balance of $61,554, including mortgage debt. Without home
loans, the average balance was $12,875.
The data is based on Experian’s
FileOne database, which includes 220 million consumers. (There are about 242
million adults in the U.S., according to 2015 estimates from the Census
Bureau.) To determine the average debt people have when they die,
Experian looked at consumers who, as of October 2016, were not deceased,
but then showed as deceased as of December 2016. Among the 73% of consumers who
had debt when they died, about 68% had credit card balances. The next most
common kind of debt was mortgage debt (37%), followed by auto loans (25%),
personal loans (12%) and student loans (6%).
These were the average unpaid
balances: credit cards, $4,531; auto loans, $17,111; personal loans, $14,793;
and student loans, $25,391.
That’s a lot of debt, and it
doesn’t just disappear when someone dies.
What happens to debt after you
For the most part, your debt dies
with you, but that doesn’t mean it won’t affect the people you leave behind.
“Debt belongs to the deceased
person or that person’s estate,” said Darra L. Rayndon, an estate planning
attorney with Clark Hill in Scottsdale, Ariz. If someone has enough assets to
cover their debts, the creditors get paid, and beneficiaries receive whatever
remains. But if there aren’t enough assets to satisfy debts, creditors lose out
(they may get some, but not all, of what they’re owed). Family members do not
then become responsible for the debt, as some people worry they might.
That’s the general idea, but
things are not always that straightforward. The type of debt you have, where
you live and the value of your estate significantly affects the complexity of
the situation. (For example, federal student loan debt is eligible
for cancellation upon a borrower’s death, but private student loan companies
tend not to offer the same benefit. They can go after the borrower’s estate for
There are lots of ways things can
get messy. Say your only asset is a home other people live in. That asset must
be used to satisfy debts, whether it’s the mortgage on that home or a lot of
credit card debt, meaning the people who live there may have to take over the
mortgage, or your family may need to sell the home in order to pay creditors.
Accounts with co-signers or co-applicants can also result in the debt falling
on someone else’s shoulders. Community property states, where spouses share
ownership of property, also handle debts acquired during a marriage a little
“It’s one thing if the
beneficiaries are relatives that don’t need your money, but if your
beneficiaries are a surviving spouse, minor children — people like that who
depend on you for their welfare, then life insurance is a great way to provide
additional money in the estate to pay debts,” Rayndon said.
How to avoid burdening your
One way to make sure debt doesn’t
make a mess of your estate is to stay out of it. You can keep tabs on your debt
by reviewing a free snapshot of your credit report on Credit.com, in
addition to sticking to a budget that helps you live below your means. You may
also want to consider getting life insurance and meeting with an estate
planning attorney to make sure everything’s covered in the event of your death.
If you’re worried about leaving behind debt after death, here’s more on
how protect your loved ones.
Poor planning can leave your
loved ones with some significant stress. For example, if you don’t have a will
or designate beneficiaries for your assets, the law in your state of residence
decides who gets what.
“If you don’t write a will, your
state of residence will write one for you should you pass away,” said James M.
Matthews, a certified financial planner and managing director of Blueprint, a
financial planning firm in Charlotte, North Carolina. “Odds are the state laws
and your wishes are different.”
It can also get expensive to have
these matters determined by the courts, and administrative costs get paid
before creditors and beneficiaries. If you’d like to provide for your loved
ones after you die, you won’t want court costs and outstanding debts to eat
away at your estate.
here for the original article from Credit.com