More than likely, you are going to die with having some sort of debt to your name. A recent study done shows that 73% of Americans died with debt in 2016. According to Nerdwallet, the average American household has credit card debt totaling $16,425, and the average household with any kind of debt owes $135,924, that includes mortgages. That is a lot of debt of the average family.
So what happens to the debt when someone dies?
In short, the debt dies with you.
When you take out a credit card or loan, you are the person who is responsible for paying back whatever you borrow. So in the event of death, that obligation ends and will not be passed on to your loved ones. Debts are generally paid through the estate and anything left over should disappear. You are able to leave behind belongings for loved ones to inherit but you can have the peace of mind that they will not be inheriting your debts.
The only time that this will not be true is if you have any jointly owned debts. In most cases, the joint account holder will be responsible for the rest of the debt that is due, even if they have never made any payments previously.
Even though a loved one will not be responsible for any debt that is solely yours, this will not keep collectors from trying to collect on the debt and try to get you to believe that you are still responsible for the debt.
What should you do to keep this from happening?
Have an executor
The best way to stop collectors from contacting your family regarding any debt matters is designating an executor of your estate. This can be done in a will. An executor will be the one person who will handle all of the finances of the estate, which includes any unpaid debts. If a relative does get a call trying to collect on debt, they are then able to direct the caller to the executor and ask them to please not call again regarding the debt.
As an executor, it is their responsibility to notify any creditors and let them know of death as well as contacting the three major credit report agencies. This will help to stop any identity theft of the deceased.
Create a will
After you have determined who you would like to designate as your executor, creating your last will and testament can contribute to outlining how you want your finances to be paid. You don’t necessarily need to leave instructions on financial matters but having a will in place will not only help make these matters simple but also give your loved ones the peace of mind that they are doing what you would want and makes it easier to divide your assets among the beneficiaries