Credit card debt has a reputation for keeping people up at night, and understandably so. If you get bogged down with a high balance you can't easily afford to pay off, it can take years to get out of debt. But what happens to your credit card debt if you die before you've repaid it?
When a person dies, the courts freeze their assets until their will is validated (if they have one). Then, their debts are settled and the beneficiaries of their will are identified. This process is known as probate.
Credit card debt is a type of unsecured debt, which means it's not linked to any form of collateral, like a car or house, and the state will probably mandate that a person's remaining assets are used to pay off the debt.
Such assets might include any remaining cash and/or property with cash value. Some assets, such as retirement accounts, eligible brokerage accounts and life insurance payouts, might be shielded from this process as long as there is a legal beneficiary (known as a custodian).
If the deceased has no assets, loved ones won't be directly responsible for paying the debt unless they are a joint account holder on the deceased's credit card, according to the Consumer Financial Protection Bureau (CFPB). In some states, the surviving spouse may be responsible. Authorized users are generally not held responsible for the deceased's unpaid balances.
While your heirs may not be legally responsible for paying your debt outright, all debts must be settled before any loved ones can receive their share of the inheritance. There are a few workarounds to this, including setting up an eligible trust fund, but you'll need to hire an estate lawyer to set one up and it requires planning well in advance.
Probate laws differ from state to state, but if you have any joint account holders on your credit cards, you should come up with a plan in case either party passes away. To get a better sense of what the probate laws are in your area, visit your state court's website or speak to a local estate attorney.
How to avoid surprises
If ballooning credit card debt keeps you up at night, there are steps you can take to get your balance under control. Pull your free credit report and sign up for a free credit monitoring service so you have a clear picture of all your debt. CreditWise® from Capital One shows an overview of all your credit card and loan balances, and it's available to anyone, not just Capital One card users.
CNBC Select also recommends Experian free credit monitoring, which could help you track your balances if you want to eliminate the stress of debt and pay off some of those cards.
CreditWise® from Capital One
Cost
Free
Credit bureaus monitored
TransUnion® and Experian®
Credit scoring model used
FICO® Score 8
Dark web scan
Yes
Identity insurance
No
Terms apply.
Pros
- Free to use with no impact on your credit score
- Includes Social Security number alerts
- Uses FICO® credit score, the industry standard
- Credit score simulator estimates how various actions will impact your credit
Cons
- Doesn't monitor credit reports from Equifax
- only updates once a week
Experian Dark Web Scan + Credit Monitoring
Cost
Free
Credit bureaus monitored
Experian
Credit scoring model used
FICO®
Dark web scan
Yes, one-time only
Identity insurance
No
Terms apply.
Once you know exactly how much credit card debt you're working with, put together a plan to pay it off. Check out CNBC Select's five methods for paying down debt for ideas to get you started.
If you don't have life insurance, consider signing up for a term policy, especially if you have a partner and/or dependents. A term policy is typically more affordable than whole life insurance, and the money can be extremely useful if you and your partner depend on two incomes to make ends meet.
Talking about death is never easy to do, but you might find that making a plan for your financials helps you feel more secure and makes you less anxious in the long run.
