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CBS News
23-06-2025
- Business
- CBS News
Can you inherit credit card debt? Experts weigh in
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. There are some instances to be aware of in which you could inherit credit card debt. Getty Images/iStockphoto Credit card debt continues to strain household budgets, with the average credit card balance ticking up to $6,618 in the first quarter of 2025, according to Experian. At the same time, the Federal Reserve reports average interest rates on credit cards remain elevated at 21.37% with many card issuers charging rates around 30% or higher. With a high balance and interest rate, even the minimum payment can be hard to make, let alone paying your other bills. Perhaps that's why over 40% of American households are relying on their credit cards just to cover everyday expenses, a recent Civic Science study shows. If you're dealing with a similar debt burden, you may wonder what happens to it after you die or in the event of the death of a spouse or loved one. Specifically, can you inherit someone else's credit card debt? We put these questions to the experts. Below, we'll break down what they had to say. Stuck with high-rate credit card debt? Explore your top debt relief options here. Can you inherit credit card debt when someone dies? "Typically, you won't inherit debt from a loved one unless you're a co-signer on the debt or it's a joint debt, like a joint credit card," says Leslie Tayne, a finance and debt expert and founder of Tayne Law Group in New York City. "Debt is usually paid out by the estate if possible, but if not, then it may not be repaid." According to a recent survey, 55% of Americans expect to leave behind debt when they die, and in most of those cases, they believe it'll be at least $5,000. The deceased person's estate typically settles these debts. If the estate lacks the funds to pay them off, the remaining balance may go unpaid without passing the burden to surviving family members. Don't risk leaving credit card debt to family. Check your credit card debt forgiveness qualifications here. What usually happens to credit card debt after death When someone dies, you don't automatically inherit their debt. But you may not be off the hook either. So, when are you responsible for a spouse or loved one's debt, and when are you not? "The decedent's estate is responsible for paying any credit card debt, typically before any remaining estate assets are passed on to heirs," says Kyle DePaolo, co-founder and principal at DePaolo & May Strategic Wealth in Irvine, California. "If the estate is insolvent (debts exceed assets), the credit card company may write the debt off. Family isn't liable unless legally connected to the debt." That said, there are generally two important exceptions: Joint account holders or co-signers may be fully liable. Spouses in community property states (and domestic partners in some cases) could be responsible if the debt was taken out during the marriage. If you don't fall into one of those categories, you likely aren't responsible for the debt. If you're unsure, speak with an estate attorney to clarify your legal responsibility. Common myths about inheriting credit card debt There are many misconceptions about credit card debt and who's liable for it when someone dies. Misleading information online and from debt collectors only adds to the confusion. "If my parent dies with debt, I'm on the hook," is one of the most common assumptions people make, says DePaolo. "False—unless you co-signed or were a joint account holder." "Another myth I hear is that a creditor can go after retirement savings," says Chris Diodato, founder of WELLth Financial Planning in Palm Beach Gardens, Florida. "Even during life, most IRAs, 401(k)s and 403(b)s are afforded some protection from creditors. I've never seen a case in my career when an IRA or 401(k) account needed to be invaded to pay creditors." While state laws vary, retirement accounts are generally safe from creditors. What if a spouse dies with credit card debt? The first step you should take after the death of someone with credit card debt is to notify the credit card companies and provide them with a copy of the death certificate. Typically, the card issuer will close the account and pause collection efforts once they're notified of the death. While you're at it, contact the credit bureaus to freeze their credit and update the credit report to show the person has died. This helps prevent identity theft or fraudulent activity under their name. If debt collectors call, don't assume you're personally liable. "Talk to an estate attorney before responding to any debt collectors," says DePaolo. "Don't rush into settling anything personally." It's a good idea to head off potential issues by preparing in advance. "Pay close attention to any debt that you co-sign on or are a joint owner on," says Tayne. She also notes that "spouses in community property states, like California, should have a good understanding of what kind of debt their partner has incurred during their marriage to avoid any unpleasant surprises in the event that someone passes away." The bottom line It's hard to make financial decisions while you're grieving, but getting legal counsel can help you avoid future financial headaches. You may even be entitled to benefits you may not know about. For example, you might want to check whether the deceased had any unused credit card rewards. Some issuers allow trustees or spouses to claim them within a limited time. If you're not sure who's legally responsible for a debt, or whether it should be paid from the estate, consult an estate or probate attorney for professional assistance. And if debt collectors are harassing you, remember that the Fair Debt Collection Practices Act protects you from threats, false claims and repeated calls.
Yahoo
18-06-2025
- Business
- Yahoo
8 ways to refinance a mortgage with bad credit
To refinance your mortgage with a bad credit score, check with your current lender to start since you already have an established relationship with it. You can also explore government-backed loan options to refinance with bad credit, such as an FHA loan or VA loan, as long as you qualify. Fannie Mae and Freddie Mac both have programs that permit mortgage refinancing with a low credit score. Some borrowers might choose to refinance to switch from an adjustable-rate to a fixed-rate mortgage or to tap into their home equity. But the decision to refinance is made more complex if you have less than stellar credit. However, there are ways to refinance with a low credit score and benefits and drawbacks to consider before deciding if it's right for you. If you're looking to refinance your mortgage with a low credit score, here are some options to consider. Mortgage lenders focus on forming relationships with borrowers. If you're trying to refinance but have bad credit, you'll need to spend some time finding the right refinance option for you. Start with your current lender or loan servicer since you are already a customer. Contact the officer or employee you originally worked with at your lender if they are still there. If not, ask for a referral. 'Having the name of someone and something in common, like the referral source, is an excellent way to start building the relationship,' says Leslie Tayne, a New York-based financial debt resolution attorney with Tayne Law Group and author of 'Life & Debt.' 'Explain your needs and find out the options the bank can offer to you.' If a lender looks at your debt-to-income (DTI) ratio and your loan-to-value (LTV) ratio, as well as other factors, and your application is in a gray zone, it can go either way. If you have a relationship with the lender or already have a checking or savings account with it, that may work in your favor. 'Communicate often and be prepared with the [financials] the bank will be requesting to back up your request for funding,' says Tayne. 'Being organized and responsive is vital. The banker will appreciate you helping him/her do their job better, which is to put the loan together for underwriting.' Learn more: Best mortgage refinance lenders If you want to refinance and have an FHA loan, the FHA streamline refinance program can be a great option. Unique characteristics of FHA streamlines include: No income verification or credit check: You won't need to submit paperwork verifying your income or submit to a credit check, meaning it's a good option if your credit score isn't the best. Evidence of on-time payment: Your lender will require a minimum of six consecutive mortgage payments that you paid on time and in full. Net tangible benefits: To qualify, the refinance must produce a 'net tangible benefit,' such as a 5 percent reduction in your monthly mortgage payment or a change from an adjustable-rate mortgage to a fixed-rate mortgage. Limited cash out: You may be unable to take out cash in excess of $500 on mortgages refinanced under this program. The main benefit of this option is to permanently lower your monthly payments. While an FHA streamline refinance is reserved for current FHA borrowers, any borrower can apply for an FHA rate-and-term refinance. Since FHA loan standards are generally more lenient than conventional mortgages, this can be a good route if your credit has worsened since taking out your initial loan. Like the streamline program, an FHA rate-and-term refinance is not a cash-out program — the purpose is to help you reduce your monthly housing costs. You must use all proceeds to pay your existing mortgage and costs associated with the transaction. However, this method allows you to include second and third mortgages in the refinanced amount. These options are only available if you are eligible for VA loans and/or have a mortgage guaranteed by the U.S. Department of Veterans Affairs (VA). If you have a mortgage guaranteed by the VA, you can refinance even with bad credit with an Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA streamline refinance. IRRRLs typically require that you provide financial information such as two years of W-2s and federal income tax returns, as well as recent pay stubs. Lenders who offer this option will also require a home appraisal, and you must make at least six monthly mortgage payments before you qualify. Like an FHA streamline refinance, an IRRRL must result in a 'net tangible benefit' for the borrower. 'VA homeowners must [also] be able to recoup the costs of the new loan within 36 months of closing,' says Chris Birk, vice president of mortgage insight and director of education for Veterans United Home Loans and author of 'The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.' 'Those costs do not include the VA funding fee or escrows.' If you're a veteran with a current mortgage that is not a VA loan, a VA-guaranteed cash-out refinance loan lets you replace your current loan with a new one while allowing you to take cash out of your home equity. Even if you don't want to take cash out, eligible veterans with a current mortgage from a lender other than the VA should investigate this option. Like streamlines from the FHA and VA, the USDA Streamlined Assist program doesn't require a credit check. Instead, anyone with a USDA loan who has made the last 12 months' worth of mortgage payments on time can qualify. In addition to no credit check, this program also doesn't require a new home appraisal or home inspection and doesn't consider your debt-to-income ratio when determining your eligibility. Like other streamline programs, there must be a certain minimum outcome — at least a $50 net reduction in your monthly mortgage payment. Another way to refinance with a low credit score is a portfolio loan. These are loans that the original lender originates and retains instead of selling them on the secondary market. You can obtain a portfolio loan through banks and mortgage brokers who set their own standards for the loan, which can be more flexible than typical refinance requirements. You're more likely to get a portfolio loan if you've been a long-time bank or mortgage customer or the lender wants your business. That doesn't mean lenders will finance any borrower regardless of qualifications, however. They still want portfolio loans to perform, and that means they will take a careful look at your finances and credit history. If you've had an application issue that has not passed muster with most lenders, a portfolio lender could be more open. Some portfolio lenders 'cater to smaller borrowers because it's their specialty or primary customer base, and they're looking to build their portfolios of small lending,' says Tayne. To find out if a portfolio loan is available to you, work with a mortgage broker or a full-service mortgage lender who can shop your application to portfolio lenders. If bad credit is preventing you from refinancing and locking in a lower rate, you can get a co-signer or co-borrower. A co-signer with strong credit and deeper pockets gives the lender more security, but even among family or friends, co-signing a mortgage is a business deal. You'll have to convince a co-signer that you have the financial capacity to repay the loan, and that you'll put repaying the loan before other obligations. Delinquencies (late payments) go against both borrowers' credit reports. If the loan were to go unpaid, the co-signer is then responsible. You'll also have to answer some difficult questions. Is the co-signer also a co-owner of the property? What happens in the event of divorce, death or a simple falling-out? Both parties should have wills, living wills and any other paperwork needed to protect estates. Seek help from an attorney to get the entire arrangement in writing to protect yourself and your co-signer. Fannie Mae's RefiNow and Freddie Mac's Refi Possible allow you to refinance with bad credit. The RefiNow program has no minimum credit score requirement and is open to borrowers at or below 100 percent of the area median income who have DTI ratios of as much as 65 percent. To qualify, applicants must also have no missed payments on a current mortgage loan over the past six months and no more than one missed payment in the past 12 months. Freddie Mac's Refi Possible also offers more flexible qualification requirements for those seeking to refinance with a low credit score. The program is designed for low- to moderate-income borrowers. To qualify, an applicant's total annual qualifying income must not exceed 100 percent of the area median income. The program also eliminates the typical 620 minimum credit score requirement for mortgage loans. Both programs require that your interest rate on your new loan be 50 basis points — half a percentage point — lower than your current loan. Your credit score will determine how many options you have when it comes to refinancing. 'If your credit score is below 700, your ability to refinance into a conventional mortgage is limited,' says Jeff Ostrowski, writer and housing market analyst at Bankrate. However, there are still some refinancing options for people with credit scores below 620. Those with scores below 580 have even fewer choices, but could still benefit from speaking with their lender and working to build their credit. Even if you can refinance with bad credit, it doesn't mean you should. 'Considering that mortgage rates remain around 7 percent, you're unlikely to refinance into a better rate than what you have on your original mortgage,' says Ostrowski. While you wait for rates to drop, you can focus on building your credit. However, many people refinance to turn their equity into cash, using it to reinvest in their homes or pay down high-interest debt. 'If your intention is to take cash out of your home to pay down credit card debt, I'd urge caution: Make sure you've got your spending under control before you tap home equity,' says Ostrowski. 'The last thing you want is to use the proceeds of a refi to pay off debt, only to find yourself in the same situation in a year.' Learn more: When should you refinance your mortgage? As you consider refinancing with bad credit, it's important to think about how to improve your credit score so you have more options and better approval odds. Three ways to improve your credit score include: Check your credit report: All three major credit reporting bureaus — Experian, Equifax and TransUnion — will provide you with one free credit report per week. You can get these free reports at While the reports won't give your credit score, they'll detail all your debts and your payment history, which impacts your score. When you pull your reports, look for factual errors, out-of-date info, unauthorized charges and fraud — issues like these could lower your score. Reduce your credit utilization ratio: Your credit utilization ratio is a measurement of the total amount of available credit that you're using. Reducing it by paying down the balance on your revolving lines of credit can have a significant impact on your score, as it accounts for 30 percent. Pay all bills on time: The most significant factor contributing to your credit score is your payment history. It amounts to about 35 percent of your overall score. Consistently paying bills on time without fail can have a huge impact on improving your score. What are the alternatives to refinancing if my credit score is low? You could bring a co-signer on board to help you qualify for a refinance. Another option is a home equity loan or line of credit if you want to convert your equity into cash. Or you can ask your lender for a loan modification, which can potentially reduce your monthly payments or interest rate. Note that a loan modification is used as a way to prevent foreclosure, so your lender may not grant it unless you're in financial duress. How many times is your credit score pulled when refinancing? Lenders usually pull your credit score twice: first at the beginning of the application process and then again right before you close on the loan. Does refinancing hurt your credit score? When you refinance a mortgage, your credit score may go down temporarily due to lenders doing hard pulls on your credit. However, if you bundle your credit inquiries into 45 days or less, it will only count as one inquiry.
