Americans Are Dying With an Average of $62K of Debt

What happens to your debt after death? Learn how to keep creditors away from your family in a worst-case scenario.

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.) 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 Does Happen to Debt After You Die?

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, Arizona. 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 payment.)

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 differently.

“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 Family

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 (this explains how to know if you need it) 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.

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Can My Co-Signer Sue Me?

co-signer-sue

People who can’t qualify for a loan, credit card or rental housing on their own are often told the same thing: Get a co-signer.

It sounds like such a easy solution, but there’s nothing simple about tying your credit rating to someone else’s payment habits or being on the hook for a loan someone else is using. Co-signing a loan can be the right choice, but it’s a risky one.

One of our readers, who commented on our blog under the screen name CryscAz, is in a complicated situation after getting a student loan with a co-signer.

“I had a student loan for about $12,000. My boyfriend at the time was a co-signer on the loan and when we broke up I moved away. Recently we got in contact after all of these years and he is upset that he paid the loan for my student debt. He is now threatening to sue me for the loan that he repaid. Can this be possible?” —CryscAz

It depends on what exactly the agreement between the couple was, but the short answer is “Probably not,” wrote Persis Yu, an attorney at the National Consumer Law Center, in an email. Yu said the reader would be best served by asking a family law attorney to review the specifics of the case.

“It would depend on what state they are in and what agreement they made when he agreed to co-sign the loan and/or made the payments,” Yu wrote. For example, if when the boyfriend agreed to co-sign the loan, the couple agreed the student would be responsible for payments and would have to repay the boyfriend for any payments he made, then he “could probably prevail in a suit for those payment[s],” Yu said.

Yu went on to say that it also depends how the couple was handling finances before the breakup, like if they had shared household expenses and if the student loan was included in them.

“This is like any other expense one partner pays for the other prior to a breakup (Hence the family law lawyer…),” Yu wrote.

Co-signing a loan means taking on responsibility for that loan, regardless of how your relationship to the other borrower may change. That’s part of what makes them so risky. Before co-signing a loan, you need to consider potentially negative outcomes (that the other person won’t pay the loan) and how you might suffer because of it (you’ll have to make the payments, or the loan will become delinquent and damage your credit).

Generally, you probably don’t want to co-sign a loan if you’re not prepared to be fully responsible for repaying it. If you do decide to co-sign a loan, you may want to clarify the arrangement with the other borrower in writing and maintain clear communication with that person throughout the life of the loan. It’s also a good idea to track how that loan affects your credit standing, which you can do by getting two free credit scores each month on Credit.com.

If your credit has taken a hit because of a co-signing mis-step, you may be able to improve your score by paying down high credit card balances, disputing errors on your credit report and limiting inquiries while your credit rebounds.

If you have questions about co-signing a loan or other credit matters, you can share them in the comments.

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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