Medical Debt Consolidation
Among the many problems America has with the healthcare system is that too many of us can’t afford it.
The average American spent $10,224 on healthcare in 2018, or about twice what people in European countries pay.
A survey by the Kaiser Family Foundation found that 26% of the adults in the U.S. (ages 20-65) had trouble paying their medical bills in the past year.
The Consumer Financial Protection Bureau said that 52% of bills at collection agencies came from healthcare providers and one of five credit reports had multiple medical bills attached to it.
And one last stat to drive home the point: 63% of the bankruptcy filings every year cite medical bills as the primary reason for giving up financially.
If you’re sick of this problem, medical debt consolidation might cure what ails you.
Consolidate Your Medical Bills
The first thing you should know about medical bills is that hospitals and doctor’s offices don’t add interest to their bills. You can pay them off as quickly or slowly as your income allows without worrying about interest rates compounding your problems.
That said, many people feel compelled to pull out a credit card and pay when the service is provided. That is where debt consolidation becomes the life raft that saves you from drowning financially.
Be aware that using a credit card to pay off medical bills could quickly become a financial disaster to your credit score. Your credit utilization ratio would soar, along with the amount owed. If you can’t pay it off at the end of the month, your credit score would take a dive and potentially, the interest rate you pay on the card could soar.
If, for example, you put a $5,000 hospital charge on a credit card with 20% interest and don’t pay it off at the end of the month, another $274 in interest would be added to your next bill.
If you do find yourself with high credit card bills and medical debt, you can consolidate your credit card debt and your medical debt into one payment through a debt management program. Call a nonprofit credit counseling agency and seek help. The credit counselor will get you on a budget and determine how much you can afford to throw at your medical bills, while still leading a normal life.
Interest-rate reduction is the primary benefit of consolidation programs like debt management or a debt consolidation loan. The interest rate you’ll pay with either of them should be considerably less (8%-10% less, maybe even more) than what you pay on credit card.
If you choose a loan, you may be able to get either a personal loan or home equity loan at a reasonable interest rate to cover the amount owed.
The way it works is that you take out a loan and use the money to pay off all of your medial debts. Then you have one creditor and one monthly payment to worry about.
A personal loan is an unsecured loan from the bank. There’s no collateral which means the bank will charge a higher interest than what you might get with a home equity loan. Home equity loans are backed by your home. You are putting an asset (your home!) at risk, but the interest rate will be lower and the interest you pay can be deducted from your taxes.
Medical Debt Consolidation Program Benefits
- One monthly debt payment, combining credit card debts with medical debts, helps you streamline your bill paying process, 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 you 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 much difference in terms of what you owe, but it may be more convenient than writing checks to a variety of doctors and hospitals.
At any rate, there are options, other than bankruptcy, if medical bills weigh you down. Bankruptcy is considered a “nuclear option,” meaning the one you go to if all other choices won’t do the job.
Keep an open mind, ask a nonprofit credit counseling agency to help with options and determine the best course to eliminate your debt.
Medical Debt Relief Options
There are several ways to whittle medical debt down to a more affordable number as long as you have a steady income and remain committed to the job.
Here are a few suggestions:
Always Review Medical Invoices for Accuracy
Falling behind usually happens when people don’t recognize the gaps in their insurance coverage (thought they were covered for some procedure, but weren’t) or fail to check invoices for accuracy. Hospitals are notorious for over-charging patients for services and medications, but the mistakes aren’t always caught or corrected.
There Is No Interest on Medical Debt
Hospitals and doctor’s offices don’t charge interest on medical bills. They should be willing to work up a payment plan that suits your budget. That is the most effective way to deal with medical debt.
But what happens when medical bills overwhelm you? Here are some of the better solutions.
Negotiate Your Medical Debt
The first option is to negotiate directly with the doctor or hospital. Doctors and hospitals inflate costs dramatically, and there is a lot of room between what it actually cost and what your bill says. Tell them what you can afford to pay every month and work out a realistic payment plan. They’ll end up with a lot more money than they would turning it over to a collection agency.
Alternatively, you can offer to pay a lump sum in advance and settle the rest. Make sure to get an agreement in writing before paying the lump sum. Settling your medical debt for less than you owe, can have a negative impact on your credit score.
There are professionals who specialize in medical debt negotiation. They look for errors in your bills and try to negotiate additional discounts on your behalf. These are things you could do on your own time, but it might help to hand your case off to a professional – for a cost, of course. Medical debt negotiation companies take a percentage of the money they save you.
Bankruptcy for Medical Bills
A 2007 study by Elizabeth Warren, Harvard law professor and current U.S. Senator from Massachusetts, determined that 62% of the 822,590 personal bankruptcies filed that year were caused by medical debt. That figure has been disputed over the years, but most experts agree that medical debt is still the No. 1 cause for personal bankruptcy.
If you don’t see a way out of the situation, filing bankruptcy is always a final option. It can be done individually, but whether you choose Chapter 7 or Chapter 13 bankruptcy, it almost always is advisable to seek counsel from a bankruptcy attorney or credit counselor.
Ask Family and Friends for Financial Help
Ask around. Friends and family can pitch in with whatever they can afford to get you over the hump. It can be humbling to ask people you know, but it’s even more humbling if you don’t ask and end up declaring bankruptcy. Consider starting a Gofundme campaign (or asking a friend to do so on your behalf). Get your request circulated to your family, friends and church community.
See If You Qualify for Medicaid
If you’ve suffered a job loss, have seen your income decline and low to no assets, you may qualify for your state’s Medicaid program. Learn more about Medicaid, how to qualify and enroll.
Konish, L. (2019, February 11) This is the real reason most Americans file for bankruptcy. Retrieved from https://www.cnbc.com/2019/02/11/this-is-the-real-reason-most-americans-file-for-bankruptcy.html
McClanahan, C. (2018, August 13) People Are Raising $650 Million On GoFundMe Each Year To Attack Rising Healthcare Costs. Retrieved from https://www.forbes.com/sites/carolynmcclanahan/2018/08/13/using-gofundme-to-attack-health-care-costs/#615c18972859
Warren, E., Himmelstein, D., Thorne, D., Woolhandler, S. Medical Bankruptcy in the United States. Retrieved from http://cohealthinitiative.org/sites/cohealthinitiative.org/files/attachments/warren.pdf
NA, (2014, December) Consumer credit reports: A study of medical and non-medical collections. Retrieved from http://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf