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Medical Debt: How to Manage and What It Means for Your Credit

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An estimated one in ten adults in the U.S. are in medical debt, and millions of households owe more than $10,000. Carrying around this added debt can negatively affect your finances but paying off your medical bills is not as straightforward as paying off other types of debt. You do, however, have options for reducing the amount you owe and when you pay it back. Learn how to manage medical debt to limit its effect on your finances.

Elderly patient at front desk at hospital talking with medical staff about billing issues.
Yellow notepad with pen svg icon Lesson Notes:
  • Medical debt can have a significant impact on your finances. You can usually negotiate a lower price or set up a repayment plan if you can’t afford the full amount.
  • Consider taking out a loan or medical credit card to pay off your debt instead of sending it to collections.
  • As of July 1, 2022, medical debts paid in full previously sent to collections will no longer appear on consumer credit reports.

How to Manage Medical Debt

Medical-related debt can catch people by surprise. An accident or illness can inhibit your ability to earn a living, and treatment can cost thousands of dollars or more, depending on your insurance coverage.

If you receive a medical bill, ask for an itemized bill and look over the services listed. If you aren’t sure why you are being charged, contact your healthcare provider. Compare the list of charges to your health insurance explanation of benefits to see if the charges are valid.

Most insurance policies come with a deductible, which is the amount you need to pay out of pocket before the insurance company will cover the cost of care. If you don’t have insurance, you may be able to reduce the amount you owe by talking to your healthcare provider.

Once you have gone over the bill, you have several options for managing your medical debt.

Negotiate a Lower Price

If you are uninsured or cannot afford to pay the full amount you may have the ability to negotiate a lower price for your medical bill.

Contact your medical provider and be upfront about how much you can afford to pay. Your provider may accept a partial payment as opposed to sending the bill to collections. If some of the charges are invalid or should have been covered by insurance, contact your healthcare provider or insurance company to dispute the charges.

If you don’t have insurance, see if you qualify for your state’s Medicaid program. You may also be able to negotiate to pay the same rate that the insurance company pays. Insurance companies typically pay a lower rate than the average consumer.

Set Up a Payment Plan

If you can’t afford to pay off your debt by the due date, talk to your healthcare provider about setting up a payment plan. Most healthcare companies and clinics allow patients to pay in installments instead of a lump sum. This is one of the most common ways to resolve unpaid medical debts.

The total is divided into monthly payments. You will need to keep making payments until the debt is paid in full. Make sure you can afford your monthly payment when setting up the payment plan. Look over the terms and conditions to see what happens if you miss a payment.

If you are facing economic hardship and cannot afford to pay the full amount, you may qualify for an income-driven repayment plan, which reduces the amount you owe based on how much you can afford to pay.

Medical Credit Cards

You can also try using a medical credit card to pay off your debt in full if your provider doesn’t accept a payment plan. These cards may be offered by the hospital, medical credit card companies or other financial institutions.

Only participating healthcare providers accept them and they may not cover every procedure, so check with your healthcare provider beforehand.

Most cards will not collect interest for the first six to 12 months. After the interest-free period expires, you may be hit with a deferred interest rate, which dramatically increases the amount you owe. Make sure you can pay off your debt in full before the deferred interest applies.

Debt Consolidation

If you can’t get a medical card or pay it off in time, you can apply for other types of credit, such as a personal loan. Personal loans generally range from $1,000 to $100,000. You can use the loan to pay off your debt in full. However, you will need to pay back the loan in regular monthly installments plus interest. Shop around for the best interest rate by comparing loans from multiple lenders.

Another debt consolidation option is to pay off your debt with a traditional credit card. But you should only consider this option if you qualify for a card with an introductory interest-free period. You will need strong credit to qualify. Be sure to pay off your medical debt before the full interest rate kicks in.

Hire a Medical Bill Advocate

You can hire a medical bill advocate to negotiate your medical bills if you have run out of options in terms of paying your medical bills.

Advocates are trained in medical billing. They possess the knowledge to get around unnecessary charges and billing errors to help you get out of debt. They will speak to the healthcare provider and insurance company to reduce the amount you owe as much as possible.

You may also be able to get assistance from a non-profit that specializes in medical billing issues. Hospitals in Colorado (and most non-profit hospitals) are required to have a charity care program or offer financial assistance to patients who qualify. These non-profits can help you navigate the charity care program and help you get financial assistance.

Check out these resources and organizations for more assistance with medical bills and debt:

Can Medical Bills Affect Your Credit Score?

Recently (July 1, 2022), the three largest credit bureaus have changed how medical debt will show up on your credit report and how it will affect your credit score.

Paid medical debt that was in collections will no longer appear on consumer credit reports. This policy change gives Americans more relief from medical debt. What does this mean for you?

If you have paid off your medical debt in full and there is still a negative mark on your credit report, it will now be removed, which should improve your credit rating. This includes all medical debt that was previously in collections but has now been paid off.

You will also have more time to pay off your medical debt in collections before it appears on your credit report. Unpaid medical debt can now stay in collections for up to 12 months before it will negatively affect your rating. Previously, the debt would be reported after six months in collections.

All three major credit reporting agencies, including Equifax, Experian, and TransUnion, will no longer include medical debt under $500 in collections in consumer credit reports.

If your credit rating was previously affected by medical debt in collections, your score might have improved since the rule went into effect. The change is meant to limit the effect medical debt has on consumer credit reports, so those in debt have more time to pay it back.

Collection agencies and debt collectors typically buy medical debt for pennies on the dollar. If you have a medical bill for more than $500 that goes to collections, do your best to pay it off within the next 12 months to prevent it from showing up on your credit report.

Unexpected healthcare events can leave you saddled with high medical bills. You should be able to reduce the amount you owe or give yourself more time to pay by setting up a repayment plan. Try to avoid having debt for more than 12 months to keep it out of collections and to keep your credit rating intact. Keep these options in mind to help you manage your medical bills.

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