If you’re like most Americans, you’ve probably accumulated your fair share of financial obligations throughout life, including credit card debt. Indeed, a recent survey reveals that 45% of US households carry a credit card balance from month to month, with older generations owing the highest debt — about $6,650 for boomers and a whopping $9,250 for Gen X.
It’s natural to wonder what happens to credit card debt when you’re gone and how it might affect your loved ones afterward. While credit cards and other debts don’t disappear after you die, the good news is they typically don’t become your family’s direct responsibility either.
Let’s dive into what really happens to your credit card debt when you die and how it might impact your estate and heirs.
What happens to credit card debt after death?
Just as death and taxes are inevitable, credit card debt tends to be stubbornly persistent. Fortunately, your family isn’t responsible for your credit card debt after you die as long as they aren’t a cosigner or joint account holder. Instead, credit card debt is settled from your estate.
Here’s what typically happens to plastic in the afterlife:
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Your estate pays the debt. After you die, credit card companies become creditors to your estate. If there are sufficient assets in the estate, the debt is paid off with proceeds from your estate. Credit card companies have priority over heirs in claiming payment from your estate.
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If the estate can’t pay. If there’s not enough money in your estate after it’s settled to cover your credit card debt, the unpaid balance will likely be written off. The reason is that credit card debt is most typically unsecured, and this debt doesn’t pass on to your heirs.
Who is responsible for credit card debt after you die?
In most cases, your estate is responsible for paying off your credit card debt. An estate is the sum total of your assets and liabilities, including bank accounts, property and even unpaid debt.
After death, your estate may go through a process called probate, where debts are settled and any remaining assets are distributed to your beneficiaries and heirs.
That said, there are specific situations where a family member might be on the hook for your outstanding credit card balances after you die, including:
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Joint credit card accounts. If you have a joint credit card account with another person, you and that person are fully liable for the entire debt. If one person dies, the survivor must pay the full balance, regardless of who made the charges.
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Cosigners on the account. If you listed a cosigner on your credit card application, that person remains responsible for the debt after your death. Since they agreed to cover the balance if you couldn’t, this obligation continues even beyond the grave.
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Community property states. If you live in one of nine community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin — your spouse may be responsible for debts incurred during the marriage, even if they aren’t a joint account holder.
What about authorized credit card users?
Authorized users are people you’ve permitted to use your credit card, but they’re not responsible for the debt after you die. Since they didn’t sign the credit agreement as joint account holders or cosigners, they’re not obligated to pay off any remaining balances. However, they will lose the right to use the card once you’ve passed.
How to avoid card debt complications after you die
To minimize the red tape with credit card accounts and other financial obligations — like outstanding mortgage —, after your death, consider taking these steps to make things easier for your family:
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Pay down your debt. Focus on reducing your overall debt, especially high-interest credit card balances. This will make it easier for your estate to be settled and potentially leave more for your beneficiaries. Here are the top four expert tips for paying off your credit cards.
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Purchase life insurance. A good life insurance policy can provide funds to pay off debts, cover funeral expenses and support family members that rely on you financially. Life insurance proceeds are typically paid out quickly to beneficiaries, bypassing the probate process.
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Keep accurate records. Maintain an up-to-date list of all your assets and debts, including account numbers and contact information for your bank accounts, investment accounts, retirement accounts, mortgages, car loans and utilities. This will greatly assist your executor in managing your estate.
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Consider setting up a living trust. By transferring your assets into a living trust, you can help your estate avoid the often lengthy and costly probate process. This can allow for quicker distribution of assets to your heirs and provide more privacy than a will.
It’s also worth noting that certain accounts are typically exempt from credit card debt repayment, including:
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401(k) retirement accounts. As long as there is a living beneficiary named on the account, creditors can’t make claims against 401(k) accounts. However, if there’s no beneficiary, the assets become part of the estate and can be used to pay debts.
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Life insurance policies. Death benefits paid to named beneficiaries are usually protected from creditors. Exceptions may occur if the estate is the beneficiary or if the policyholder had a legal judgment against them.
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Certain brokerage accounts. Accounts with named beneficiaries, such as “transfer on death” accounts, often pass directly to the beneficiary outside of probate. When there is no beneficiary named, these accounts typically become part of the estate.
💡Expert tip: Estate matters can be complex, especially if a person left large debts or assets in their wake. If you’re handling an estate with thorny financial matters, it’s a good idea to consult with an estate attorney or financial advisor to help guide you.
3 steps to take after a cardholder dies
When a cardholder dies, it’s important to notify the credit card companies as soon as possible and put a freeze on the accounts.
Here are three additional steps you can take to protect your loved one’s personal and financial information from identity theft and fraud:
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Request multiple copies of the death certificate. You’ll need to present this document to various institutions, including credit card companies, in order to close your loved one’s accounts. Contact your state’s vital records office to order one.
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Freeze the deceased’s credit. Contact the three major credit bureaus — Equifax, Experian and TransUnion — to place a freeze on your family member’s credit report. This helps prevent identity theft and fake accounts being opened in their name.
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Notify card issuers and other creditors of the death. Gather all credit card statements and notify each company of your loved one’s death. Ask about outstanding balances and what steps you need to take to pay off and close the accounts.
Dive deeper: What not to do after losing a spouse or partner: A financial checklist
What to do if a creditor claims you owe money
If a creditor or debt collector contacts you claiming you’re responsible for a deceased family member’s debt after they’ve died, it’s important to know your rights and take the following steps to protect yourself:
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Request written verification of the debt. If a creditor contacts you, request written confirmation of the debt. This should include the amount owed and account details. It’s your right to ask for this information, and creditors must comply.
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Don’t provide sensitive information With financial scams on the rise, be very wary of providing personal information over the phone. A legitimate company will never pressure you for your Social Security or bank account numbers or make threats. They would already have this information if your loved one had an account with them.
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Know your legal standing. Unless you’re a joint account holder or a cosigner or live in a community property state, you’re not responsible for paying off another person’s credit card debt. Rather, the estate is responsible for satisfying the debt.
Remember, debt collectors are prohibited from using deceptive or unfair practices to collect a debt. If you feel you’re being unfairly pursued, file a complaint with the CFPB.
Dig deeper: 5 practical ways to keep your financial information and identity safe online
What happens to credit card rewards after a cardholder dies?
The fate of credit card rewards after death varies by card issuer. Some companies, like American Express, may allow the executor of the estate to make a one-time points redemption. Other issuers may have policies that result in forfeiting — or losing — earned rewards on the cardholder’s death.
It’s best to check with individual card issuers for their specific policies. If you have an account that’s earned significant rewards, it might be worth considering how to handle these in your estate planning.
FAQ: Card debt, beneficiaries and your estate
Is it possible to inherit credit card debt?
No, you don’t directly inherit credit card debt unless you are a joint account holder or cosigner. However, if you’re a beneficiary to an estate, inherit assets from the estate and specified gifts in a will can be reduced if there is credit card debt to pay off first.
What happens to credit card debt if there’s no estate?
If there’s no estate or the estate has no assets, the credit card debt typically goes unpaid. Creditors are often left no choice but to write it off, as they can’t go after assets that don’t exist.
Are life insurance payouts safe from credit card company claims?
It depends. As long as the life insurance policy contains provisions that ensure payouts go directly to your named beneficiaries and aren’t part of your estate, creditors typically can’t make a claim against your life insurance proceeds. There are exceptions, however — including if the policyholder had a judgment against them at the time of death. Talk with a lawyer that specializes in estates or find a trusted financial advisor that can make sure you’ve protected your benefits and loved ones.
Do medical bills take precedent over credit card debt in estate settlement?
In many states, medical bills are given higher priority than credit card debts when settling an estate. The exact order of priority can vary by state, so it’s best to check local laws and consult with an attorney that specializes in estates or another legal professional.
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About the writer
Kat Aoki is a seasoned finance writer who’s written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Forbes Advisor, Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to empower consumers and business owners to make informed decisions and choose the right financial products for their needs.
Article edited by Kelly Suzan Waggoner
