An American Millennial will have an average debt of $78,396; the number goes higher as your age go up. That includes student loans, credit card debts, and mortgage. While you think your debt will magically go away when you die, think again. You could be passing the burden to your loved ones.
If you’re smart enough to create a will or consult a probate lawyer regarding your assets, paying off existing debt will be part of the planning. Your estate or whatever asset you will leave behind will be used for payment to the banks or creditors.
The executor of your will or estate will take care of this, issuing checks or selling your properties to cover the payment. Meaning if you have tons of debt, it’s possible there won’t be enough left for your family. So, think about this before signing up for multiple loans.
Secure and Unsecure Debts: What’s the Difference?
Debts are classified as secure and unsecure. Home mortgages and car loans are secured because they’re backed by assets, which can be sold or repossessed to pay the creditor.
Meanwhile, credit cards, medical bills, personal loans, and unpaid utilities are unsecured. The lenders are not protected, and they might not be paid if there’s no money or assets left behind. But there are times that other people could also be responsible for paying off these debts.
- Credit Cards – if there’s a joint account holder, maybe your spouse or partner, that person will be responsible for keeping up with the payments of loans or debts associated with the card. But if there’s no account co-owner, then the estate can cover the payments. Otherwise, the credit card company will take a loss and write it off.
- Mortgage – If your home or car loan has a co-signee, then that person will take over the payment of the remaining mortgage. But they can choose just to sell the house or vehicle, pay off the remaining balance while getting some money, and protect it from foreclosure.
- Co-signed loan – meaning any loan that has a co-signee or a guarantor, then those people will have to carry the burden of paying for the debt.
What Creditors Can and Can’t Take
Creditors must be legally informed of your passing. Then they have three to six months to submit a claim to your estate. Your estate executor will then review those claims and issue the payments as necessary. If your assets can’t cover for the house or car payments, your family can decide on whether to sell them to cover the remaining credit or just let the banks repossess them.
As for your other debts, your lawyer should be able to sort out whether the claim is legal or not.
On the other hand, creditors can’t go after life insurance benefits, retirement accounts, or living trusts. Your beneficiaries won’t be forced to give them up to cover for your debts. That is why getting life insurance is very important to protect your family from financial ruin.
Leave a Good Legacy to Your Family
Accumulating debts is not a bad thing, especially if they’re necessary to your life or business to succeed. But you have a choice to make to protect your family from shouldering them on your untimely passing. You either plan to get out of debt soon or plan your estate well.
Getting your affairs in order even when you’re still young and healthy means taking care of your loved ones. You don’t even need to be a millionaire to realize this.