Death and taxes are certain. But what happens to credit card debt after death can be downright confusing.
While few words evoke more dread than debt and death, it’s an important topic to tackle. According to the Canadian Bankers Association, roughly one in three Canadians don’t pay their credit card balance in full each month. Meanwhile, a separate report found that among the 56% of Canadian seniors who do owe debt, credit card debt is the most prevalent.
Below, we break down what happens to credit card debt after death to help you understand the implications for your own finances and those who you leave behind.
Can you inherit credit card debt?
The quick and simple answer: no, you can’t inherit credit card debt owed in the name of a spouse, parent, sibling, common law partner, or anyone else just because you’re married, in a legally-recognized relationship, or related by blood.
You also won’t pass on credit card debt owed solely in your name to loved ones after your own death.
When a credit card is opened and held exclusively in one’s name – they, and they alone, are legally liable to pay back the debt. Credit card debt isn’t like assets and won’t automatically be inherited by relatives after death.
You may be wondering, what if I share a credit card with someone else? Well – as I explore below – that’s where things can get a bit more nuanced and there are exceptions to the rule.
What about joint credit cards?
As a co-borrower or co-signer
If the credit card account in question was opened together with someone else as a co-borrower (or co-signer), then the co-borrower is equally responsible for making payments and can inherit credit card debt if the other dies.
Emphasis on the word co-borrower here.
Opening a credit card as a co-borrower or co-signer is far less common in Canada and isn’t the same as adding someone as an authorized user.
As a co-borrower, you and another person went through the complete credit card application process together and both filled out application forms, underwent credit checks, met the card’s income requirements, and have the card listed on your respective credit reports. On the other hand, authorized users are simply added to an existing account and only have permission to use the credit card for everyday purchases. Unlike co-borrowers, authorized users usually aren’t liable for debts owed.
If you’re unsure whether you’re a co-borrower or co-signer on a credit card, check your credit report to see if the credit card account is on file, reach out to your bank or credit union, and speak with the loved one or friend who you share the account with.
As an authorized user
Let’s clarify something right off the bat: most Canadians who share a credit card account do so as primary cardholders and authorized users (sometimes referred to as additional or supplementary cardholders).
If you’ve been added as an authorized user on someone else’s credit card, you likely won’t inherit debt owed on the account. Authorized users simply have permission from the primary account holder (aka the actual credit card owner) to use the credit card account to make everyday purchases. That’s it.
In fact, as an authorized user, you’ll almost never have the credit card listed on your credit report or receive monthly statements. You usually can’t even see the credit card on your banking app. The reason being, as an authorized user, you never actually applied for the credit card.
As you can read in the cardholder agreement of the Tangerine Money-Back Card below, it’s the primary cardholder who is responsible for paying back the balance owing – not authorized users.
While you might have a plastic card as an authorized user with your own name and number, legally speaking, the card is linked to the primary account holder who actually opened the credit card, signed the contract, and is liable for payments.
All that said, the legalese in credit card contracts can vary by bank. So, you’ll want to dig into the fine print of your particular cardholder agreement to understand if and what payments authorized users are liable for.
One final note: as an authorized user, you’re also not allowed to continue to use the credit card when the primary cardholder has died. Doing so could open you up to fraud charges
As a primary cardholder
If you’re the primary account holder, you’re liable to pay back any credit card payments made by the authorized user on your account in the event of their death. That shouldn’t come as a surprise, however, because the primary account holder is always responsible for paying back the balance owed on behalf of the authorized user.
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What happens to credit card debt after death?
Since credit card debt is almost never directly inherited, you may be wondering if the debt disappears completely after death? Well, not exactly.
When someone dies, all the assets and belongings tied to their name will become part of what’s called an estate – which represents the deceased’s entire net worth. Any debts owed to creditors – including consumer debt in the form of credit cards – will be paid back from this estate.
Only after debts are paid off by the estate will the remaining assets be distributed to beneficiaries according to the deceased’s will (or based on provincial intestate laws, if no will was signed).
If credit card debt owed by the deceased is larger than the value of the estate, the remaining debt owed will not be inherited by relatives or loved ones left behind (unless, as covered earlier, the credit card in question was opened jointly with a co-borrower or co-signer). In other words, any remaining credit card debt that can’t be paid off by the estate effectively goes poof. Unfortunately, it also means your beneficiaries won’t inherit any of the assets you leave behind.
Credit cards are known as unsecured debt – which means they’re not backed by any assets or collateral – so credit card companies really are out of luck if there’s not enough in the estate to pay off the deceased’s balance owing. That’s unlike a mortgage or car loans – both secured loans – where a property or vehicle can be sold to recoup some of the debt.
In short, while credit card debt likely won’t be inherited by loved ones, it can still leave a financial impact by decreasing the size of the estate and inheritance they will receive.
Does balance protection insurance cover credit card debt after death?
Balance protection insurance – which sometimes goes under the name payment protection – is a completely optional type of coverage designed to help you meet your credit card payment obligations in the event you’re not able to yourself. Like if you’re recently unemployed or because you kicked the bucket.
The idea of paying for balance protection has long been contentious, and for good reason. It’s expensive and almost never really required.
For one, as I pointed out earlier, debt on a credit card held solely under your name can’t be inherited by loved ones or family members after your death. Second, balance protection often includes caps on the payments amounts that may not cover the entire debt owed. And lastly, and most importantly, it’s expensive.
The cost of monthly premiums for balance protection insurance can hover around $1.19 for every $100 of your credit card’s balance – plus taxes. On a $2,500 balance, that adds up to $29.75 per month or $357 per year in premiums alone – not including taxes. That’s steep and almost comparable to the cost of credit card interest you’d owe for carrying a similar-sized balance. What’s worse is the cost of the premium increases proportionally with the size of your credit card balance.
You’d likely be far better served by having your money put towards paying the credit card debt you owe in the first place versus spending extra on balance protection premiums.
If you do want to provide added financial protection for a co-borrower or the estate you leave behind for beneficiaries after your death, a better alternative would be to sign up for life insurance. For instance, if you’re young and healthy, a 20-year term life insurance plan can cost as low as $20 per month for a death benefit of $500,000. The payout from a term life insurance plan completely dwarfs what balance protection insurance offers in the event of death and can be used to pay for all expenses and debts, not just your credit card.