What to do with credit card debts after death

Credit card debts can be a big problem for the heirs of people who have substantial debts.

Usually debts that are unsecured against a person cannot be passed on to heirs if they exceed the estate.  However they are usually counted against the estate and can substantially reduce the value of the estate that is passed down.

One exception to debts not being liable to the heirs if they exceed the deceased’s estate is the case of co-signatories.  There are many children who are earning who will co-sign for a card for a non-earning parent.  These cases are usually manageable, particularly if the statements are sent to both co-signatories.

It is less frequent that a non-earning child (particularly a student) may die before their parent.  In these rare cases it is far more likely that the debts will exceed those of their co-signing parents.  However as long as the credit limit is being managed effectively and the statements are being sent to the parents then there is less likely to be a big problem.

Most cases of large credit card debts do not involve co-signatories.  In these cases it is Important to know the extent of the debts at the earliest possible opportunity.  It is rarely a good idea to expect that the credit cards will not know of the death and it is a good idea to quickly write to the provider and ask for the interest to be frozen.  As there is no issue with the credit score or further borrowing then this course of action does not have the detrimental effect that it has on the lender.  A lender will often offer to cap the interest instead.

If there is interest that is still rising on the card (and this will often vary by state) then it is a good idea to pay this off as early as possible as the interest can substantially reduce the value of the estate, particularly if the period before distribution is prolonged.

Credit card insurance is often put forward as a good move for a wage earner to cover their debts if they should die while they are still working.  This is often offered by credit card providers and many policies cover death.  These are rarely cost effective compared to orthodox life insurance and it is usually a good idea to increase the scope of existing life insurance (or to simply take out life insurance).