Paying Medical Bills With Your Credit Card
It’s very easy for medical bills to get overwhelming. A single doctor visit can be anywhere from $50 to $300, and every procedure, medication, test, and exam is another addition to the total. Before you know it, you could have a bill showing up in your mail that far exceeds what you can afford to pay.
It’s no wonder, then, why it can be very tempting to pay off your medical bill with your credit card. At least with your credit card you can pay it off in smaller, manageable increments; right?
As it turns out, paying your medical bill with your credit card might seem alluring, but it might not be the right move to make: both for your credit score, and your overall finances. Every scenario is different, but how can you know when it’s appropriate to pay your bill with your credit card and when it’s not?
Can You Pay Medical Bills Using a Credit Card?
The short answer: yes, you can. Most hospitals will give you various options to pay bills, including debit cards, checks, cash, and even credit cards. That doesn’t necessarily mean you should use a credit card, however.
Why Paying Medical Bills With a Credit Card is a Bad Idea
One of the first things you should do before paying your medical bill is call the hospital or your insurance provider and make sure everything was billed correctly. There are plenty of scenarios where hospitals will send you incorrect bills or premature bills; perhaps your insurance wasn’t billed correctly, or maybe it is still processing with insurance and has yet to be approved. Before committing to paying your bill, make sure the bill is final.
If your medical bill is in the final step (having gone through insurance, approval, and now being sent to you), then you can consider your options. But what options are there, and why should you avoid using your credit card to solve your medical billing problems?
Interest Rates and Researching Your Options
Medical bills are daunting, but one way to make them way more scary is to add interest to the amounts you owe. If you pay your medical bill with your credit card, you will be doing just that. Suddenly that $1,100 bill will have an 18 percent (or more, depending on your cardholder agreement) interest fee attached. Meaning you’ll be paying more in the long run than if you had just paid the hospital directly.
Hospitals have more negotiable interest rates on their bills, and — unless the bill goes to collections — you will most likely only have a slight increase in the amount you owe if you go through the hospital’s payment plan. Some hospitals might not even have interest at all. That is why it is so important to research your payment options with the hospital before paying the bill with your credit card.
For those without insurance it can be even harder to find ways to pay off medical debt, but your credit card should be your last resort. You should always review your bill for inaccuracies and potential issues. Call your hospital and discuss the options for repayment. Many hospitals offer low-income or uninsured individuals options for repayment plans or financial assistance. The same goes for those on a high deductible plan: you have zero or low interest options and should thoroughly research them all before you resort to your credit card.
Your Credit Score and the Credit Utilization Ratio
Another reason to avoid putting a medical bill on your credit card comes down to your credit utilization ratio. This is the number that compares your current balance on all your open accounts to the total amount you can borrow on all lines of credit. For example, you might have a total line of credit of $10,000, but you don’t want to have more than 30 percent of your card used (which is about $3,000) or else it could negatively affect your credit score.
If you’re placing your medical bill onto your credit card, you could easily exceed that suggested 30 percent threshold. Your credit score could decline until you pay that balance off, and it could take some time before your score recovers.
Of course, you may be worried that your medical bill will go to collections — which has historically been bad for your credit score — but the newest version of FICO 9 and VantageScore 4.0 don’t weigh medical collection debt with as much severity anymore. This means your bill might go to collections, but might not hurt your credit score. It just depends on what scoring model your lender or bank uses (not all banks use the updated models).
The reason to not use a credit card for your medical bills is twofold: you could hurt your credit score by increasing your credit utilization ratio, and you could be paying more in the long run through interest on your credit card. However, are there scenarios when it could be appropriate to use your credit card on a medical bill? The short answer: yes, there are.
When Is It O.K. to Pay Your Medical Bills With a Credit Card?
There’s only one situation where paying your medical bill with your credit card will work in your favor: when you can pay off the amount before accruing interest. In other words, when you simply need to hold yourself over until your next paycheck, or when you know you can get it paid down within a more immediate timeframe.
In these sorts of situations, the bill is most likely manageable and not a massive amount of money. For these smaller medical expenses, your credit card can be used as a temporary reprieve to prevent late fees from the hospital or your account going to collections. However, if you do decide to pay your bill with your credit card, make sure you remember to pay it off as soon as possible to avoid collecting interest.
Medical Bills and Credit Cards: A Bad Combo
Unfortunately, medical bills and credit cards rarely mix well. Using your credit card to pay off medical bills might seem like a tempting idea, but it can lead to more financial stress, a lowered credit score, and could actually prevent you from getting a better deal.
It is vital that you always research your bill and your options before you agree to pay, and then consider the pros and cons of using your credit card for such a large amount of money. Credit cards often have the highest forms of interest, whereas hospitals can have anywhere from zero to two percent interest. How much will you be paying in the long run if you use your credit card? How fast can you pay off the amount you put on it? Was the hospital able to offer you a better deal?
You never know what better options are out there until you ask!
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Katie McBeth is a researcher and writer out of Boise, ID, with experience in marketing for small businesses and management. Her favorite subject of study is millennials, and she has been featured on Fortune Magazine and the Quiet Revolution. She researches SEO strategies during the day, and freelances at night. You can follow her writing adventures on Instagram or Twitter: @ktmcbeth
This post was updated November 13, 2017. It was originally published November 14, 2017.