Strategies for Medical Debt Consolidation

FT Contributor  | 

Medical debt is having a devastating effect on families and their financial situations. According to Health Affairs, 18% of the United States’s Gross Domestic Product (GDP) comes from healthcare spending, but many Americans still struggle everyday to pay their medical bills.

A 2015 Consumer Financial Protection Bureau (CFPB) report found that 43 million Americans have overdue medical debt on their credit reports and an average of about 52% of all overdue debt is from medical expenses. These medical expenses can be crippling for many Americans, especially those who attempt to use high-interest credit cards to pay off these debts. However, there are ways to eventually get out of this medical debt, including consolidation.

Should I Consolidate Medical Debt?

It’s important to note that medical debt doesn’t accrue interest. When you accumulate medical debt and fail to make payments on the balance, it can be turned over to a collections agency. However, interest is never added to your balance so you’ll never be forced to pay more than the initial cost.

While you may be tempted to use loans or a credit card to pay off your medical debt, be cautious of these strategies. A loan or a credit card will accrue interest, so using one of these sources to pay off your debt may cost you more than paying it off yourself. When you take out loans or rack up credit card balances, your credit utilization rate, or the amount of credit you’re currently using, gets higher. A higher utilization rate negatively affects your credit score.

A survey of about 1,000 Americans who are currently in credit card debt revealed that about 30% of this credit card debt was from medical expenses. Americans who have racked up their credit card balances attempting to pay off medical expenses may find some relief by consolidating this medical debt.

Two Options for Consolidating Medical Debt

If you need to pay off medical debt and are thinking about using a credit card or you’ve already used a credit card to pay your medical bills, debt consolidation may help you get back on track. There are two options you can choose from to consolidate your medical debt.

Take Out a Loan

To consolidate medical bills, you can take out a loan from a bank or credit union. Depending on your situation, you may be able to take out a personal loan or a home equity loan. However, you’re only eligible to take out a home equity loan if you own a home and have built some equity in it.

When you take out a loan, it pays off all your various medical bills and then you only owe money to the loan creditor. However, it’s important to understand the terms of the loan before you agree to it. Depending on your credit score and other factors, the interest rate may be high, causing you to pay a lot more than you originally owed in medical debt. While your monthly payments may be lower, you could be facing a long loan term, which is the amount of time you’ll be paying off the loan.

Debt Management Program

The second option for medical debt consolidation is a debt management program. If you enroll in a debt management program, companies work with you to reduce your monthly payments or interest rates so you can pay off your debt more easily. In most cases, you can pay off both your medical debt and your credit card debt through the program. When you enroll in a debt management program, you’re encouraged to stop using your credit card and you’re offered low interest rates on the debt you currently have.

Medical Debt Consolidation Benefits

Both taking out a loan and enrolling in a debt management program are medical debt consolidation options that have several advantages. Here are a few ways these consolidation programs can benefit you:

  1. One monthly payment: Juggling several payments each month can be overwhelming, time-consuming, and frustrating. With medical debt consolidation, you only have one payment that you’re responsible for each month. With all your debt owed to only one creditor, you won’t have to waste your time figuring out exactly how much you owe to each credit card company or lender.
  2. Consistent payments: The more consistent you are at making payments on your debt, the more improvement you’ll see with your credit score. Credit bureaus reward consistent payments since it shows determination and discipline. With a medical debt consolidation program, you’ll be making consistent monthly payments to a creditor to pay off your balance. This can improve your credit score and show that you’re a responsible and trustworthy borrower.
  3. Guided support: If you enroll in a debt management program, you’ll be assigned a credit counselor to assist you through the process. This counselor is an expert on debt management and will create a realistic and personalized payment plan for you based on how much debt you owe and your monthly income. This credit counseling service is free and included in your debt management program. With this guided support and a tailored payment plan to fit your budget, you may be able to pay off this debt faster than you would by yourself.

If you’ve attempted to pay your medical debt with credit cards, you may be facing insurmountable balances due to high interest rates. Medical debt consolidation can help make it easier to pay off your medical debt and get you back on track to becoming debt-free.


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This post was updated December 3, 2019. It was originally published December 3, 2019.