You’re probably going to die with some debt to your name. 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. 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. For the most part, your debt dies with you, but that doesn’t mean it won’t affect the people you leave behind. According to Darra L. Rayndon, an estate planning attorney, “Debt belongs to the deceased person or that person’s estate.” 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 often lose out. Family members do not then become responsible for the debt, as some people worry they might.
However, 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. If family members live in a home that is being used as an asset, they may have to take over the mortgage or 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.
Poor planning can leave loved ones with some significant stress. To protect them, it’s important to properly prepare. 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 don’t have a will or designate beneficiaries for your assets, the law in your state of residence decides who gets what.