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Medical Debt Consolidation: Is It Right for You?

Debt consolidation may be one way to eliminate medical debt. Carefully weigh your options before committing to it.

April 15, 2022

Life can throw you surprises even if you’re a good planner. One of those surprises could be medical care. While some medical services can be planned, others can catch you unawares, like medical emergencies.

To make things more frustrating, medical bills can be complex, confusing and often involve multiple bills. There’s also a chance they may have errors. When those bills start piling up, the thought of going through them can be stressful. 

It’s natural to worry about how you’re going to pay off all those medical bills, especially if you already have credit card debt, car payments or student loans to pay off.

As Americans face rising health care costs, paying for medical services could drain their personal finances even if they have health insurance. 

About 25% of Americans carry a medical debt of at least $10,000, and half of them have health insurance, according to an Affordable Health Insurance survey. Deductibles, copays and other out-of-pocket costs can all add up.

But there’s a positive side to medical bills: You have several options to pay them off. 

Since you may need to tackle a stack of medical bills, a starting point may be to consolidate all your medical bills into one. Let’s explore the different ways you can consolidate medical debts so you can determine if it’s the right solution for you.

Getting debt relief with medical debt consolidation

One benefit of medical debt consolidation is that you don’t have to keep track of several bills. You just have to worry about keeping track of one bill and one monthly payment.

Before considering your debt consolidation options, know that medical debt gets kinder treatment than other types of debt. There’s often no interest charged for medical debt, you may be able to negotiate a lower amount with your health care provider, and it doesn’t impact your credit score immediately — more on that below.

Explore your consolidation options

There are different ways to approach medical bill consolidation. You could get a personal loan, a balance transfer credit card or a home equity loan, or you could sign up for a debt management plan. It’s a matter of deciding which one aligns well with your financial situation.

Personal loans or debt consolidation loans 

With these unsecured loans, you could borrow the amount to cover all your medical expenses and pay off the lender in installments over time. Here are some of the pros and cons to keep in mind.

Pros: The loan can pay off all your medical bills with one lump-sum payment. Plus, when it comes to paying back the loan, you’ll have a fixed monthly payment, making it easier to budget for.

Cons: You’re taking out a new loan that can have interest charges and a loan origination fee. You may end up paying more than the amount of your medical bill.

Balance transfer credit card offer

You could take advantage of a 0% APR cash balance transfer introductory offer. Here are some of the pros and cons.

Pros: You can transfer all your medical debt to a credit card with 0% APR.

Cons: You’ll have to pay off the debt within the introductory period. Otherwise, you may have to pay the interest rate on the original transfer amount. Credit cards are unsecured debts and generally have higher interest rates. Although you don’t have to pay interest during the introductory period, there may be a balance transfer fee buried in the fine print. Don’t be surprised to find it somewhere between 3% and 5% of the transferred amount.


Home equity loan or home equity line of credit (HELOC)

If you have equity in your home, you could consider borrowing against the equity in your home with a home equity loan or HELOC. You can then use the loan or line of credit to pay off your medical debts. Consider these pros and cons of borrowing against your home.

Pros: Home equity loans could carry lower interest rates than personal loans, and the interest might be tax-deductible. A HELOC is a revolving line of credit, so you borrow what you need and make minimum payments on what you’ve borrowed. It’s similar to a credit card and, in that regard, can be more flexible. Some lenders offer variable interest rates, which could be lower than credit card interest rates.

Cons: Home equity loans and HELOCs come with higher risk since you’re using your home as collateral to pay off your medical bills. If you’re unable to pay your bill, you could lose your home, your credit score could take a huge hit, and you may start receiving calls from debt collectors. Also, home equity loans come with fees, which are usually a percentage of the total loan.

Debt management program

You could speak with a certified credit counselor from a credit counseling agency about negotiating an agreement between you and your creditors. Credit counselors can help you find options based on your financial situation and could help lower your medical debt by setting up a debt management program. Here are some of the pros and cons to think about.

Pros: You just have to make monthly payments to the agency, which is likely to be based on what you can afford.

Cons: You may have to pay a setup fee and other administration fees. Nonprofit credit counseling agencies may be less expensive, so you’ll want to shop around.

Alternatives to medical debt consolidation

If medical debt consolidation isn’t a viable debt relief option for you, there are other alternatives to medical debt settlement that you could explore. They include:

  • Hire a medical billing advocate: Reviewing medical bills can be an overwhelming exercise. You could receive bills from multiple doctors and departments for one visit to a health care provider. There may be errors such as duplication of services, incorrect codes or charges for services that you may not have received. If it’s too confusing for you, you may be better off using the services of a medical advocate. As a bonus, they may be able to negotiate a lower rate for you.

  • Negotiate with the creditor: You could try negotiating on your own with your medical provider. You could ask for the insurance or Medicare rate, which can be lower than what’s on your bill, or find out if there is a discount for making one lump-sum payment. Finally, your medical provider may be willing to lower the amount you owe or set up a payment plan.

  • Use a medical credit card: You may be able to get a credit card from a medical facility that comes with a promotional offer of 0% interest for a specific time. This can be a great option if you can make monthly payments and pay off all your medical expenses by the end of the promotional period. If you aren’t able to pay it off by then, you may have to pay interest every month on the original amount of the bill. 

  • Bankruptcy: As a last resort, you can consider the bankruptcy route. It may wipe out all your debt, but it could take a decade to build back your credit status.

How do unpaid medical bills impact your credit score?

Unpaid medical bills may be sent to a collection agency. Any loans or bills that are sent to collections could show up on your credit report and impact your credit score. Depending on the rest of your credit history, this could make it difficult for you to get a mortgage, rent an apartment or get insurance.

Sometimes health insurance companies can take some time to pay covered expenses to the health care provider. When your insurance company pays for covered expenses after your medical bill is in collections, the paid portion should be withdrawn from your credit report.

When your medical debt is sent to collections, you have a 180-day grace period before your medical debt shows up on your credit report, which gives you time to think about whether you want to pay off your medical bills using a medical debt consolidation option or an alternative. 

On a positive note, changes are being made in how medical debt collections will be treated. As of July 1, 2022, the three credit bureaus will be extending the grace period from six months to one year. They will also start removing medical debt from your credit report when it’s paid off, instead of letting it stay there for up to seven years. Lastly, any medical debt that’s less than $500 won’t be included on your credit report.

Review all your options

Now that you know the different options available to you to help give you relief from medical debt, assess each one. Look at your overall financial situation: your existing debts, rent, credit card payments, student loans and so on. Do some number crunching to determine if any of your consolidation options can save you money and provide debt relief. 

You also have to determine if you’ll be able to follow through on a repayment plan. If medical debt consolidation isn’t going to benefit you, there are alternatives that might be a better fit. 

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