Ways to Manage Medical Debt – Your Rx to Getting Help
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It’s not guaranteed that you’ll leave your doctor’s office or get discharged from a hospital with medical debt, but it’s likely.
According to a nationwide poll by the Kaiser Family Foundation, more than half of U.S. adults say they’ve gone into debt in the past five years because of medical or dental bills. A quarter of adults with medical debt owe more than $5,000.
The analysis of government data found that about half of those with significant medical debt owe more than $2,000. About 1 in 5 with any amount of debt say they don’t expect ever to pay it off.
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Medical debt can be managed in many ways
Medical debt differs from other forms of debt, such as a personal loan or credit card, but in a few good ways.
While a collection agency can still seek monthly payments from you, many other easier options exist for resolving unpaid medical bills. Your medical provider may be more likely to work with and offer a few options, while other creditors may not be so lenient.
We’ll review many ways to manage medical debt, including negotiating a lower amount, payment plans, medical credit cards, medical bill advocates, credit counseling, personal loans, medical debt consolidation, and debt settlement.
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Medical debt and credit scores
The biggest change in medical debt is how it's reported on credit reports and how it could hurt your credit score.
The three major credit bureaus changed how they deal with medical debt on July 1, 2022. Paid medical debt is erased from credit reports, and unpaid medical debt appears on credit reports one year after the debt starts instead of six months later.
Starting on Jan. 1, 2023, all unpaid medical debt of less than $500 will not appear on credit reports.
Also, VantageScore announced in August 2022 that all unpaid medical debt would be excluded from its 3.0 or 4.0 score calculations by mid-October 2022. It doesn’t matter how much is owed or how long the debt has been in collections.
Ways to manage medical debt
Not every form of debt management is right for everyone. Depending on your circumstances, you can choose from the suggestions below. More than one method may be needed to get your medical bills under control.
Negotiation
One of the first steps for debt relief is to call your medical provider and negotiate repayment terms. This can include reducing the amount you owe.
Start by reviewing your medical bill and explanation of benefits from your insurer or Medicaid. This can help you figure out what you’re expected to pay, and you can negotiate down from there. If you don’t have health insurance, you’ll likely be charged more, which can be a good starting point to negotiating a lower price.
Be honest about what you can afford. The healthcare provider may negotiate a lower price just based on what you can afford to pay.
Payment plan
A payment plan can be part of a negotiation to lower your bill, or if the bill isn’t lowered, then a way to allow full payment over a year or so. Dentists often offer payment plans for extensive dental work and bills.
Monthly payments for only a few months may be requested by the medical provider. However, ask for more time if you need it to fit your budget better.
According to Experian Health, personalized payment plans are the main way hospitals and other health care providers help patients with medical bills, In some organizations, the plans are used in 1 in 5 outstanding patient accounts.
Nonprofit providers are the most likely to offer these programs, including a discount.
Medical credit cards
Adding credit card debt isn’t good for your finances or credit score, but a medical credit card can be cheaper than a regular credit card by offering an interest-free period of six to 12 months.
A medical credit card can help if your medical provider doesn't allow payment plans. The cards are usually for specific medical procedures. Applications may be in your doctor’s waiting room.
You'll likely be charged a retroactive deferred interest rate if you don’t pay the medical credit card balance off during the zero-interest period. That means that any amount you owe after the “no interest” period expires, even if it’s just $1, will require paying interest on the entire amount charged. The interest starts on the first day of the loan so that you could pay more than the principal amount at interest rates of 20% or higher.
Medical bill advocates
A medical bill advocate is someone you hire to negotiate medical bills for you. They’re experts in reading health care bills and know common costs for medical procedures. They can spot possible errors and overcharges and help you set up a payment plan.
Credit counseling
A credit counseling agency won’t put any extra money in your pocket to pay your medical debt, but it can give you a detailed review and analysis of your financial situation, along with personalized options for managing it.
A nonprofit organization specializing in credit counseling may offer the service for free. A credit counselor can help set up a debt management plan that consolidates debts into one monthly payment.
Credit counseling can include social service referrals, educational materials, and financial management resources. The goal is to teach you how to manage debt yourself.
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Personal loans
Loans shouldn’t be your first option for paying medical debt because loans are types of debt that charge interest. Most medical debt from your health provider won’t charge interest.
Personal loans are getting more expensive, so this may be an expensive option if you don’t have good credit. As of April 2022, when lower interest rates were the norm, the best personal loans have starting interest rates of 3% for applicants with excellent credit. As of September 2022, the starting rate is closer to 6%.
For people with bad credit, interest rates on personal loans can still be as high as 36%.
Most personal loans are unsecured loans that don’t require collateral, such as a car or home. Instead, your credit score, income, and debt-to-income ratio are the biggest factors in determining if you get a loan for an unsecured debt, and at what interest rate.
Most lenders don’t care what the loan is for. But if they do ask, then medical debt is usually a valid reason to get a personal loan. Lenders often have minimum loan amounts, so you may have to borrow at least $1,000 to $5,000 in a lump sum to qualify. The maximum loan amounts range from $50,000 to $100,000.
Personal loans are meant to be short-term loans, though that definition is expanding. The approval process is usually fast, such as a day or two, and the repayment plan terms can range from 24 months to 60 months and longer.
A home equity loan is another type of loan you can get to pay your medical expenses. The biggest potential downside is that you could lose your home if the loan isn’t repaid.
Medical debt consolidation
When a medical bill arrives in the mail, there will often be more to follow. Medical debt consolidation is one way to consolidate medical bills into one bill that you pay.
There are many consolidation options. The goal is to use one large loan to pay off your combined medical bills at a lower interest rate while simplifying your finances through one monthly payment to just one creditor.
Medical debt usually doesn’t come with an interest rate that you’re charged. You may be able to negotiate a lower repayment amount with your medical provider. But if you can’t and want to pay the medical bills off quickly, you may want to get a loan. The loan, of course, will likely require paying interest.
Many ways to manage medical debt that we’ve listed here can be used for medical debt consolidation. A debt management program, for example, can help if you’ve used credit cards to pay your medical bills. Your credit card bills can be consolidated into one lower monthly payment, such as through a 0% APR balance transfer credit card. Debt consolidation loans can also be worthwhile.
Debt settlement
Debt settlement is a way to settle your debt for less than what you owe under an agreement that you’ll pay the new, total amount settled upon.
It’s usually handled by a third-party company or a lawyer, though you can try to do it yourself. It’s up to your medical provider if it accepts debt settlements.
A third-party company will ask you to deposit regular amounts in an account it uses to make payments on your debt or to collect fees you owe it for its services. Some companies will ask you to stop paying the creditor directly and to pay the company until a settlement is reached.
Your credit score could drop during and after this process. If you stop making payments to the creditor, as some companies will advise, then interest will accrue on the debt, and you could end up owing more than when you started. Late fees can also be charged.
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Costs
Here are some of the costs to consider for some ways to manage medical debt.
Payment plan
Billing charges or other fees may be added to payment plans, so ask what they are before agreeing to a payment plan. You should also ask if the extra costs can be waived.
Medical credit card
Interest rates of 20% are common after the “no interest” period of six to 12 months ends. The interest is deferred, meaning it starts on the first day of the loan and applies even if the balance is $1.
Medical bill advocate
These billing experts may offer an initial consultation for free. Afterward, they typically charge in one of four ways: hourly, per-project, retainer, or percentage of the amount they save you on medical bills. The hourly rate ranges from $75 to $350.
Personal loans
The interest rate on a personal loan is the biggest cost. A 10% interest rate, which is common, for a two-year loan of $5,000 requires a monthly payment of $230. The total amount of interest paid is $537.
Medical debt consolidation
Medical debt relief through debt consolidation can add interest charges if you do it through a personal loan or credit card. Those payment methods can also mean losing the special medical debt treatment, such as how it’s listed on credit reports.
If on-time payments aren’t made on personal loans and credit card bills for medical debt consolidation, they’ll be reported to the credit bureaus, and your credit score could drop.
Debt settlement
Fees from debt settlement services can range from 15% and 25% of the debt that gets resolved. You’ll pay a percentage of the settled debt, not the final negotiated repayment amount.
Pros and cons
Pros
- Properly managing medical debt can keep it from going into collections.
- Negotiation is a good first step in managing medical debt and can lower the amount owed or set up a payment plan over six months or longer.
- Unpaid medical debt appears on some credit reports after one year, six months later than it used to.
Cons
- For-profit health care providers are less likely to provide payment plans than nonprofits are.
- Debt settlement services can leave you with more debt than you started with if accrued interest is added to unpaid debts to the creditor.
- Medical debt affects most people, with more than half of U.S. adults saying they’ve gone into medical debt in the last five years.
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The bottom line
Medical debt hits the personal finances of more than half of Americans. About 20% say they never plan to pay it off, no matter how much they owe.
Fortunately, medical debt doesn’t affect credit scores as much as it used to. Starting in 2023, all unpaid medical debt of less than $500 won’t appear on credit reports, which is great news for most Americans.
Still, unpaid debts can still be legally owed and turned over to debt collectors. If your medical provider doesn’t budge on a debt, there are many ways to get the amount due lowered and eventually paid off. Medical debt consolidation and debt settlement are two of the most expensive ways, and personal loans can leave you paying interest that normally isn’t charged on medical debt.
Instead, you may be better off negotiating on your own or getting free help to lower your medical bills and expenses and setting up a payment plan you can afford.
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Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
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