Death strikes at the most inappropriate times and without the slightest hint of warning. As if coming to fact with a loved one isn’t bad enough, it can be financially frustrating to learn that they passed on with a huge debt obligation. In fact, 73% of the ordinary American consumers, according to Time, die in debt.
Even before you are done healing from the untimely demise of your family member, you might have to offset the debt that they left behind, especially if the law demands that you do so. Amidst the sorrow, however, it can be tough to deal with the debt the right way, not to mention the extra burden that it tags along. But this doesn't make it impossible.
Here’s how to offset the debt left behind by a loved one:
Identify the Type of Debt
The debt that the deceased left behind can range from easy payday loans to long-term installment loans. The first step is to identify the type of loan they have and whether they had a guarantor for the loan or not. Comb through their financial paperwork to find every single detail of their financial obligations.
Each type of debt will have to be dealt with in its own way to avoid any issues with the lenders. Here are some loans you will come across.
- Joint or Individual Debt
Individual debt is a loan that the deceased took on under their own name. A popular example would be credit card debt. On the other hand, joint debt has to deal with loans that the deceased had taken on with another person. These can be co-signed mortgages or even joint business loans.
- Secured and Unsecured Debt
Secured debt is a loan that is taken with collateral in place, which would help offset the remaining amount were the borrower to have trouble repaying the loan. A good example is a mortgage or can loan where the asset being financed is the collateral. On the flip side, unsecured debt doesn’t have collateral. Student and home renovation loans are great examples.
Inform the Creditors of the Demise
The first step in dealing with the debt is to ensure that you are on the same page with the creditors. Inform them that you are working on repaying the loan left behind by the deceased. Additionally, ask them to provide you with financial statements that detail the amount of cash owed.
After doing so, they are bound to stop harassing you for some time as you get your financial situation together. They should also stop drawing monthly payments from the account of the deceased in case the loan was an individual one, allowing you enough time to look at the repayment options.
Determine Whether the Deceased Had Insurance
Some life insurance policies cater for the mortgage of the deceased’s property and can be quite helpful in your situation, according to The Balance. Assess whether the deceased had insurance and determine what was covered in the policy. If it included paying down part of their loans, then proceed to file a claim with the insurance company.
In case the deceased didn’t have insurance, consider other payment options. For situations where you had a joint loan with them, you can negotiate better loan terms with the lenders if you find repaying the loan a struggle. Either way, you should also ask them to transfer the loan to your name.
Pay Down The Loan in Order of Priority
Before handing down the estate to the heirs, it is better that you first pay down any loans that the deceased had. Start with secured loans such as mortgages as they could easily lead to losing the home or other assets to the lenders. Next, deal with funeral costs and estate administration costs and end with unsecured loans such as credit card debt.
If selling an asset such as a car can help offset a loan, then do it. However, if the assets left behind cannot offset the debt, often known as an insolvent estate, it is best that you speak to a probate specialist.
Death is sad, but life must move on, and obligations have to be met. With the right approach, you can clear the debt within no time. Consider the above guide to ensure a smooth time dealing with the debt left behind by the deceased.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.