Medical Bill Consolidation

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If you’re sick of medical bills, don’t despair. There are cures for America’s medical debt epidemic, and what a plague it is.

Americans spent $4.1 trillion on medical bills in 2020, or about $12,530 per person. Half of Americans owe medical debt in 2021, and the Consumer Financial Protection Bureau research says that consumer credit records show we owe $88 billion and 17.8% of Americans have seen their medical bills sent to collection agencies.

The report says that 58% of the debt in collections is medical related. Telecommunications was a distant second, with only 15% of debt collection tradelines.

But should you consolidate medical debt? Apply for a government relief program? Get a medical debt loan? File bankruptcy?

Merely exploring medical debt relief options can give you a headache. Just don’t get one if you’re in a hospital, where a single Tylenol capsule can cost you $15.

Here’s a simplified look at how to consolidate debt and get medical debt relief.

What Is Medical Bill Consolidation?

Medical bill consolidation is taking out a single loan and using it to pay off multiple medical bills. It is a way to simplify paying off medical debt.

Medical bill consolidation does not eliminate the debt. It merely shifts it from several creditors to one. The end result is one payment to one lender, once a month.

The best places to look for medical bill consolidation are banks, credit unions and online lenders. Companies in all three categories often call this an unsecured personal loan because there is no collateral behind it. If you don’t make payments, there is nothing for the lender to reclaim.

How to Consolidate Medical Bills

If you’ve been hospitalized, you know there’s almost no such thing as a medical “bill.” There are medical “bills” – plural. Keeping track of them can be a hair-pulling experience. Many consumers find it easier to consolidate.

How does it work? Medical debt consolidation means taking one large loan and use it to pay off your combined medical bills. You are still in debt, but it’s simplified: just one creditor and one monthly payment to keep track of.

Medical debt consolidation can involve a personal loan, home equity loan, credit card balance transfer, and some debt management programs allow for it. Those are your best debt consolidation options.

However, there is plenty to consider before taking this step.

Unlike credit card debt or a bank loan, in most cases there is no interest charged to medical debt and more options to repay it or negotiate a lower repayment amount. Consolidating medical debt and taking on a loan to deal with it, adds interest to your monthly payments, so your long-term debt becomes more expensive. You also lose certain credit protections that apply only to medical debt.

There are alternatives to debt consolidation worth exploring.

Debt Management Program

You enroll in a debt management program offered by a nonprofit credit counseling agency that works with your creditors to reduce the interest payments on your bills.

Be aware that medical bills do not have interest charges. People choose debt management programs if they used credit cards to pay their medical bills. Debt management, also called nonprofit debt consolidation, can combine/consolidate the credit card payments resulting from medical bills into one lower monthly payment.

Credit Counseling

Counselors from those same nonprofit credit agencies comb over your finances during a free credit counseling session. They help you develop a budget and a plan to pay off your medical debt in a 3-5 year timespan. Then they’ll work with your healthcare creditor to accept the plan.

Personal Loan

You can refinance existing debt or pay for planned procedures by borrowing money from a bank, credit union or online debt consolidation lending service. Most personal loans are not secured, meaning you don’t have to put up collateral (like your house or car) to qualify for one. However, if you have a poor credit history, the lender may demand some type of collateral.

0% APR Balance Transfer Credit Card

Balance transfer credit cards with 0% introductory APR offers are useful to consolidate debt from credit cards used to pay medical bills. This strategy could offer at least temporary help, but it carries some risks.

It’s important to have a plan to pay off the entire debt before the introductory period ends and the card’s regular interest rate (usually 15%-25%) kicks in. Also, watch out for balance transfer fees, which can add 3%-5% of each transferred amount.

Assuming your debt isn’t already on a credit card, simply making monthly payments on the medical debt would achieve the same result because you’re already at 0% interest on medical bills. If you expect to have problems paying those bills, alert your medical provider, who may offer options like a sensible payment plan or a reduced rate on services provided.

Home Equity Loan

If you own your home, you can take advantage of the home equity you’ve built and borrow against that money at interest rates far less than what is charged on credit cards. Also, the new tax law of 2017 says that if you use the money to “buy, build or substantially improve,” the interest is deductible. Using it to pay off medical bills means it is not deductible.

The downside is your using a secured asset (your home) to pay off an unsecured debt (your credit card or medical bills). If you fail to pay the home equity loan, you could lose your house in foreclosure.

Medical Debt Consolidation Program Benefits

One monthly debt payment, combining credit card debts with medical debts, will streamline your bill paying process and help you stay organized and save money.

Including medical debt on a debt management program may help you pay it off more consistently and faster than you would on your own. Making consistent, on-time payments, as is required while on a debt management program, can help improve your credit score.

In fact, if you already are in a DMP, it’s possible you could roll the medical bills into the program. That won’t make any difference in terms of what you owe, but it may be more convenient than writing checks to a variety of doctors and hospitals.

How Medical Bill Consolidation Affects Your Credit

Consolidating medical bills can boost your credit score if you make on-time monthly payments. Not paying your medical bills will hurt your credit score, regardless of whether those debts are consolidated or not.

Medical debt is handled differently than consumer debt. The three major credit bureaus will not add it to a consumer’s credit report until it is 12 months past due. If the debt is less than $500, it no longer appears on credit reports.

The 12-month grace period provides time for insurance companies to make payments and allows consumers to correct billing errors, negotiate a payment plan with the provider, hire a medical advocate to resolve costs and payment plans, come up with a consolidation plan and payment arrangement and determine whether you qualify for financial assistance from nonprofit organizations or governmental programs.

If none of that happens during the grace period, the debt will likely be turned over to a collection agency, which will report it to the credit bureaus. Once that happens, it shows up on credit reports and stays there for seven years.

However, medical bills still receive special treatment:

  • Credit bureaus will remove medical collection accounts from credit reports if an insurance company is in the process of paying the bill.
  • For military veterans, some medical debts can’t be reported to the bureaus until one year after the procedure. Medical debt that was delinquent, charged off or sent to collection must be removed from credit reports once it’s fully paid or settled.
  • Medical collection accounts may have a lesser effect on credit scores than other types of collections accounts, though this isn’t guaranteed.

Unpaid Medical Bills

You are hardly alone if you have unpaid medical bills. They account for more than half of all bills that are turned over to collection agencies by identifiable creditors, according to the Consumer Financial Protection Bureau.

If you don’t pay up, the hospital or healthcare provider eventually will sell your unpaid bills to a debt collection agency. Then the hassling and credit wreckage begins.

It’s important for you to know your rights with debt collectors. There are limits to how aggressively they can pursue you for payment. Debt collectors can’t threaten you or call you before 8 a.m. or after 9 p.m. They’re not supposed to contact you at work – in some areas, that’s illegal – and you should let them know. There are ways to stop harassing calls from collection agencies, or at least to limit them.

However, they aren’t going away, so ignoring them is not an option. A collection agency will report your non-payment, which damages your credit score and make it harder and more expensive for you to get a loan in the future. Delinquent medical bills are not given as much weight as other debt, but they can stay on your credit report for seven years if they aren’t paid.

Figure out a way to deal with them before that happens.

Credit Protection May be Lost After Consolidating Medical Bills

The special treatment given medical debt can be lost if you consolidate your bills into a personal loan or onto a credit card. That means making on-time payments is even more important, since these accounts will report your activity to credit bureaus. If you are responsible with payments, you might even build your credit that way.

Other Medical Debt Relief Options

Depending on your medical provider and other circumstances, there are additional options.

  • Medical credit cards: Not all providers offer payment plans, but they may accept medical credit cards that are interest free for 6-12 months. If you can pay off the debt in that period, they’re worth considering, but if not, the interest rate that kicks in will make this much more expensive.
  • Medical bill advocates: Consider hiring a medical bill advocate to negotiate on your behalf, especially after a long hospital stay. Advocates know how to examine health care bills and what are common costs for procedures. They can spot errors or overcharges that reduce how much you owe. Medical Billing Advocates of America can connect you with an advocate.
  • Income-driven hardship plan: Low-income consumers with big medical bills may be eligible for an income-driven hardship plan that breaks the debt into more manageable, regular payments. It could even reduce how much you owe. You may have to apply for Medicaid before being eligible.
  • Debt settlement: This is another form of debt consolidation. The goal is to pay less than what you owe. Either you, or a debt settlement company, negotiate with creditors to arrive at a payment both sides accept. You make a lump-sum payment and the bill is settled.
  • Bankruptcy: This is a last resort. Bankruptcy won’t help cover future expenses if yours is an ongoing medical condition, and its effect on your credit can be severe and long-lasting – as long as 10 years. Study carefully before choosing this option, but it could be a fresh start for your finances.

Is Medical Debt Consolidation Right for Me?

Don’t assume medical debt consolidation is the right choice when you fall behind on bills. Typically, there is no interest for medical bills. They come with credit protections that can disappear when you consolidate. The convenience of a single payment may not be worth the risk.

On the other hand, if you won’t benefit from these credit protections, then medical debt consolidation may be right for you.

To help decide, ask yourself a few questions:

  • Have you taken out a loan and are paying interest on the debt? Or worse, did you put the debt on a credit card?
  • Can you pay your medical debt and still meet your other monthly financial obligations, like rent, grocery bills and car payments?
  • Would consolidating eventually eliminate your debt, or would it make more sense to just file for bankruptcy and start over?

Get Help Paying Off Medical Bills

Deciding whether to consolidate your medical bills or not can be a difficult decision, but you don’t have to do it alone. If you need help figuring things out, talk to a professional credit counselor from a nonprofit credit counseling agency like InCharge Debt Solutions.

A free counseling session, which can be done by phone, can help you decide if consolidating your debt is the right approach or if other debt relief options better solve your problem. The counselors at InCharge Debt Solutions  review your expenses and income to help you make a budget.

Some good advice could be just what the doctor ordered.

About The Author

George Morris

In his 40-plus-year newspaper career, George Morris has written about just about everything -- Super Bowls, evangelists, World War II veterans and ordinary people with extraordinary tales. His work has received multiple honors from the Society of Professional Journalists, the Louisiana-Mississippi Associated Press and the Louisiana Press Association. He avoids debt when he can and pays it off quickly when he can't, and he's only too happy to suggest how you might do the same.


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