Medical debt poses a persistent challenge in the United States, despite the majority of the population having health insurance. It continues to burden many households across the country.
For those grappling with substantial medical bills, exploring options like debt consolidation or relief may offer relief from stress while reducing the overall owed amount.
Medical debt consolidation presents one avenue to settle outstanding dues. However, before pursuing this option, it’s crucial to grasp the distinctions between consolidating medical debt and other forms of debt. Understanding the potential advantages and drawbacks associated with medical debt consolidation is essential for informed decision-making.
The details on medical debt
Employer-provided health insurance doesn’t shield individuals from medical debt. According to the Commonwealth Fund, 30 percent of adults covered by workplace health insurance are still grappling with medical or dental care debts.
Similarly, among individuals covered by other plans, the burden of medical debt persists. About 33 percent of adults with marketplace or individual market plans, 21 percent with Medicaid, and 33 percent with Medicare are currently contending with medical debt.
How medical debt impacts your credit
If you’re grappling with medical debt, you might consider medical debt consolidation as a potential solution. However, it’s crucial to recognize that medical debt operates differently from other types of debt.
Unlike missed payments on credit cards or loans, medical debt doesn’t immediately impact your credit score. Several conditions must be met for medical debt to affect your credit score:
- The bill exceeds $500.
- It remains unpaid for a year after the original delinquency date.
- The bill is sent to a collections agency.
Moreover, recent changes in credit reporting policies mean that medical bills under $500 won’t appear on credit reports once they’re in collections, and bills over $500 won’t show up until a year after being sent to collections. Many healthcare providers also refrain from reporting late or non-payments until accounts reach collections status.
These adjustments offer some leeway in managing medical debt before it significantly impacts your credit. You also have rights under the No Surprises Act, which shields you from unforeseen out-of-network bills for emergency room visits and associated treatments. Providers are required to provide a “good faith” estimate of procedure costs, and you can dispute bills exceeding this estimate by more than $400.
In essence, dealing with medical debt provides more flexibility compared to other forms of debt like credit cards or personal loans. However, ignoring it is not advisable.
Ways to pay off medical debt
There are a few methods available to help you handle debt that is specific to medical procedures.
Medical credit cards
Medical credit cards serve as a payment method for healthcare services. To utilize them, you apply through your healthcare provider, and upon approval, the credit card company settles the bill with your provider while you repay the credit card company.
Numerous medical credit card providers offer promotional perks like deferred interest for six, twelve, or eighteen months. Additionally, qualifying for a medical credit card is often simpler. Nonetheless, failing to clear the balance within the promotional period might result in retroactive interest charges from the time of your procedure.
Provider payment plans
If you’re facing substantial medical bills, your healthcare provider might offer options to help you manage payments. Reach out to them to inquire about setting up installment plans.
Opting for installment plans can ease budgeting and decrease the likelihood of your debt going to collections, as you collaborate with your provider’s billing department.
Some repayment plans come with interest-free terms for a specified duration. Additionally, you can negotiate a reduced bill based on your income and ability to pay.
If you feel overwhelmed by your debt, consider seeking assistance from a medical billing advocate. These professionals specialize in identifying errors and duplicate charges in medical bills. You can locate reputable advocates through organizations like the National Association of Healthcare Advocacy or the Alliance of Claims Assistance Professionals.
Medical debt forgiveness
In certain regions, state or local governments may provide assistance in forgiving medical debt.
For instance, various counties in Michigan, Ohio, and Pennsylvania collaborate with the nonprofit Undue Medical Debt (formerly RIP Medical Debt) to acquire and absolve significant amounts of medical debt, particularly for lower-income individuals. Connecticut is similarly involved in purchasing and pardoning millions of dollars in medical debt. Additionally, initiatives are underway in New York City and New Orleans for the same purpose.
Tools to consolidate medical debt
In addition to the above, you can access traditional methods to consolidate medical debt.
Personal loan
A personal loan provides you with a lump sum of money that you can use to settle your medical debt.
The advantage is that you’ll have just one monthly payment instead of managing multiple payments to various providers. However, keep in mind that interest rates and associated fees might accumulate, resulting in a total payment higher than if you were to arrange installment plans directly with your healthcare providers.
Certain debt consolidation loans are accessible even for individuals with poor credit scores.
Home equity loan/home equity line of credit
Utilizing a home equity loan or applying for a home equity line of credit (HELOC) allows you to access the equity in your home to settle your medical debts.
Although both options utilize your home as collateral, they function differently:
- A HELOC operates similarly to a line of credit, allowing you to borrow as needed and pay interest solely on the amount borrowed.
- A home equity loan provides a lump sum that you repay in regular installments, often featuring lower interest rates.
However, it’s important to note that these approaches entail the risk of putting your home in jeopardy. Failing to repay could result in foreclosure and the loss of your residence.
Non-medical credit cards
Consolidating debt, including medical expenses, through a 0 percent balance transfer card is a popular option.
This strategy involves transferring existing balances to a credit card with a zero-interest introductory period, typically lasting from six to 18 months, contingent on your creditworthiness and the card’s terms. Similar to other consolidation methods, it simplifies payments by merging various medical bills into a single monthly payment.
However, failing to clear the balance before the introductory period ends could result in high-interest charges. Additionally, there may be a transfer fee ranging from 3% to 5% when moving the balance to the card.
How to decide if medical debt consolidation is right for you
The drawback of traditional consolidation methods is that they may strip away the consumer protections inherent in medical debt. By consolidating medical bills with a loan or credit card, they’re reclassified as regular debt rather than medical debt.
Consider the following factors before consolidating medical debt:
Interest rates: While consolidating medical bills into a single payment can appear attractive, the associated interest rates could extend your debt repayment period. Negotiating installment payments with providers might offer zero or minimal interest rates. Payment timelines: Missing a payment on a medical bill or waiting for insurance coverage typically doesn’t harm your credit score. However, consolidating medical debt removes this protection. If you’re uncertain about meeting payment deadlines, reconsider consolidation. Budget management: Cutting back on other expenses or exploring additional income sources could assist in paying off medical debt without incurring interest or fees.
In Conclusion
Medical debt, while stressful, comes with inherent consumer protections that differ from credit card debt or loans. Due to these protections, addressing overdue medical bills demands a unique strategy.
Before committing to a medical debt consolidation plan, carefully assess your options and weigh their advantages and disadvantages. Collaborating with your healthcare provider to establish feasible payment plans can alleviate stress while gradually reducing your balance.