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July 17, 2017

Many Americans Leave a Debt Burden For Their Families When They Die, Dare to Be Different

In life, nothing is as certain as death and taxes – taxes might even be evaded (though illegal) but there's no escaping from death. It might be in bad taste to speak about death and it might even be somewhat scary to think about human frailty and mortality; yet, the fact remains that thousands of Americans die each day and when they die, they leave behind an estate that's made up of assets and liabilities.

This piece examines the salient point of some recent studies on how much debt the average American is likely to have at death. I'll also provide insight on how to protect your loved ones if there's a chance that you'll leave some debt unpaid when you die.

Here's how much debt Americans tend to have when they die

Many American's make smart financial decisions but there's still a high chance that most people will have an amount of unpaid debt when they die. Data available on Experian's FileOne database as at December 2016 showed that 7 out of 10 Americans had some debt unpaid at the point of their demise. Of course, the amount owed by each individual varies based on his or her income, lifestyle, and other factors.

Nonetheless, it should be noted that the fact that people have unpaid debts at their death doesn’t make them bad people or financially irresponsible folks. That said, the data revealed that most the average American will have unpaid debt of about $61,554 when they die. If we remove mortgage loans, the average American will have $12,875 in unpaid debts at death.

The results of another report from a Northwestern Mutual’s 2017 Planning & Progress Study revealed that 75% of Americans are in debt. 45% of indebted Americans spend as much as half of their salaries on debt repayment. About 35% of those Americans with debts think that they'll need between 6 and 20 years to pay off their debts. 14% of indebted Americans believe they'll always have a debt burden for the rest of their lives.

Another study from Bankrate revealed that the number of Americans with credit card debt has increased from 22% to 24% in 2017. More so, about 17% of Americans who don't have credit card debt also lack savings; hence, they are only one unexpected expense away from going into debt.

Here's how not to unburden your family with debt at your demise

1. Don't get into debt

The best way to avoid leaving a debt burden for your family at your demise is to avoid getting into debt. Interestingly, avoiding debt is simple (at least in theory) than most people will believe. The simplest way to avoid debt is to make sure that your expenses are never more than your finances. Hence, you can find ways to trim your expenses and be frugal in your spending. You can also find ways to make more money in order to increase your income.

2. Pay down as much debt as you can

Avoid debt is practically impossible especially when you have to pay for life's major expenses such as college, a car, or a house. However, you can avoid leaving a debt burden for your family by paying down as much debts as you can. Consolidating your debts is a great way to make debts less overwhelming and easier to manage. You may also want to pursue debt forgiveness on student loans if your loan is not to a private lender.

3. Take the time to create a will

More importantly, you should create a will on how you want your estate to be divided before you die. When you die, ideally, your estate will be divided into assets, liabilities – your assets will be used to pay off your liabilities, and your beneficiaries will only get what's left. You can ensure that your estate is managed in line with your interests by writing a will instead of living everything to chance.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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