Debt Consolidation
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Medical Debt Consolidation: What It Is and How To Do It

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Content was accurate at the time of publication.

When you undergo an unexpected illness or injury, the medical bills can start to pile up fast. If you’re having trouble managing multiple medical expenses at once, medical debt consolidation can help streamline your payments.

But, it’s not right for everyone. Keep reading for more on this financial move before you get started. Plus, we’ll share some alternative opinions for you to consider.

While it is entirely possible to consolidate medical debt, it’s important to evaluate whether this financial move makes sense for you. Here are three questions to get you started.

Does it fit in your budget?

When new medical expenses come in, take some time to consider whether they fit into your existing household budget. Often, it’s possible to budget to pay off debt by following specific budgeting strategies and adjusting your spending goals to accommodate the new expense.

While consolidating medical debt can have many benefits, including the ability to streamline multiple debt payments into one, it also comes with some downsides. Depending on the debt consolidation method that you choose, this process can come with added fees and interest charges.

With that in mind, if you’re able to pay off your medical bills without consolidating them, it likely makes financial sense to do so.

Are the interest rates affordable?

You’ll want to consider the cost of any potential interest charges when you’re thinking about medical debt consolidation. While medical debt itself doesn’t typically accrue interest, the debt products used to consolidate medical expenses often do. Debt consolidation loans and balance transfer credit cards, for instance, both come with interest rates attached.

To that end, you’ll need to consider whether the singular monthly payment that comes along with medical debt consolidation is worth the possibility of paying more in interest over time. If you’d rather avoid that added expense, it may be worth exploring your other options.

Have you considered other options?

While debt consolidation may seem like the simplest solution to pay your medical bills, it is rarely the only path toward financial freedom. Many other debt relief options exist, including negotiating with your creditors and seeking credit counseling.

We’ll explore the alternatives to medical debt consolidation in more depth below, but for now, just know that there are other paths you can take. It’s a good idea to research your options fully before committing to consolidating.

Now that you have a better idea of whether medical debt consolidation makes sense for you, let’s look at a few of the common ways to make it happen. Here are three options for you to consider:

Personal debt consolidation loan

Wondering what is debt consolidation? At its core, a debt consolidation loan is simply a personal loan that pays off your existing debts and streamlines them into one single monthly payment. However, due to its flexible nature, you aren’t limited to just covering medical expenses. You can also use it to consolidate credit card debt and other expenses.

Since these loans are installment loans, you’re typically given the funds in one lump sum once your application has been approved. You can then use those funds to pay off your existing balances. (Although, it’s worth noting that some lenders will pay off your creditors directly.) Once those debts have been paid in full, you’re only responsible for the payments on your new consolidation loan.

While there are personal loans for bad credit, those with lower credit scores will likely pay more for the privilege of borrowing. The most affordable interest rates are usually given to those with good or excellent credit scores.

Balance transfer credit card

It’s possible to use a balance transfer credit card to pay off your medical debt without paying interest charges. However, be aware that this method does come with a fair amount of risk.

To do this, you’ll first need to research 0% APR balance transfer credit cards. You’ll want to find one that’s a match for your credit score and offers a long interest-free introductory period. Then, you’ll use the card to pay off your medical bills, along with any other eligible debts. Once your debts are paid in full, you’ll start paying down the balance on the card.

In this scenario, as long as you pay off the card’s balance in full before the introductory rate period ends, you will not be charged any interest. But, there’s a catch. Credit card interest rates are typically higher than personal loan interest rates. So, if you’re unable to pay off the amount you owe before the introductory rate period ends, you will likely be subject to higher interest charges than you would find with a debt consolidation loan.

Debt management plan

If you undergo credit counseling, one of the things your certified credit counselor can do is help you set up a debt management plan (DMP). A DMP allows the credit counselor to negotiate with your creditors on your behalf and come up with options to make it easier to pay off debt, like waiving fees, lowering your interest rates, or changing your monthly payment amounts.

Once an agreement has been reached, you’ll be responsible for following the approved payment plan. You’ll pay the counseling agency directly, which will then distribute the payment to your creditors for you.

A DMP can be a good option if you don’t want to try negotiating with creditors on your own or if you have trouble keeping up with multiple payments. However, some credit counseling agencies charge fees for their services and this option is generally only a fit for unsecured debts, like medical debt. It’s not a good fit for secured loans, like mortgages or auto loans.


How to handle medical debt in collections

Medical debt only affects your credit score once it’s reported to the credit bureaus. While it’s possible that hospitals and doctors’ offices could report outstanding bills, you’re more likely to see negative impacts on your score once the debt goes to a collection agency.If your debt is already in collections, take steps to confirm the debt is yours and make sure that you understand your rights. Then, put together a plan for how to pay it off. Remember, it’s possible to negotiate with your creditors. Some may accept payment over time via a payment plan or accept less than they’re owed through a debt settlement. While paid medical debts and debts under $500 have recently been removed from borrowers’ credit reports, larger unpaid medical debts can remain on your credit report for up to seven years. If that’s the case for you, it may take some time before the effects disappear. But, in the meantime, there are things that you can do to build your credit score, such as making on-time payments and keeping your utilization ratio low.

If you’re not sure whether medical debt consolidation is the right choice for you, consider some of these alternatives:

Negotiate your medical bills

It’s entirely possible to negotiate medical bills. If you can’t afford your medical expenses, consider negotiating with your provider by following these steps:

  1. Confirm that you owe the debt and the amount is accurate: Ask for an itemized bill and check for errors.
  2. Come up with a realistic repayment plan: Calculate how much you can afford to pay toward your medical debt each month.
  3. Bring your repayment proposal to your provider: Remember to explain the details of the plan, as well as the financial circumstances that you’re facing. Also, don’t be afraid to ask for a discount on the total bill. (Insurance companies negotiate discounts regularly, so you shouldn’t feel bad asking for what you need.)
  4. Establish an agreement: Be sure to put the agreement in writing and have both you and your provider sign off on the deal.
  5. Follow the plan: Execute the plan as outlined in your agreement.

Consider Medicaid

Medicaid is a state-run healthcare coverage program for low-income individuals and families. Whether you qualify is determined based on a variety of factors, such as household income and family size. However, your medical expenses could be covered in part or in full if you qualify.

Use provider financing

Some medical providers offer in-house financing for their services. Typically, the financing is provided by a third-party lender, who can help you open up a medical credit card or put you on a structured payment plan.

If you are unable to qualify for more traditional financing, this can be a smart way to access the funds you need. That said, it’s worth noting that both medical credit cards and installment payment plans typically come with their own interest rates and fees, so you’ll want to be sure to shop around for the lowest rate if you have more options available to you.

Ask about financial assistance

If you need help paying for medical expenses, be sure to ask your provider if you are eligible for financial assistance. Nonprofit hospitals, and some private hospitals, are required to offer free or reduced-cost care.

Just be sure to ask about your financial assistance options before you agree to another financing method, like a medical credit card. Once you agree to a method of repayment, it can be harder to prove financial hardship.

Think about crowdfunding

Crowdfunding involves asking multiple individuals to come together and donate smaller amounts of money toward your larger financial goal. Many people use platforms like GoFundMe to give family and friends an accessible way to help cover their medical expenses.

If you think your network would be willing to help support you, it could be an option worth exploring. Just be sure to read the fine print. Every crowdfunding platform has its own rules and fee structure and you’ll want to make sure you’re getting the most out of the donations offered to you.

File for bankruptcy

While filing for bankruptcy should be viewed as a last resort, if you are truly underwater from medical expenses, it can help wipe out your debts and give you a fresh start. There are two types of bankruptcy to consider:

  • Chapter 7: Also known as “liquidation bankruptcy,” Chapter 7 bankruptcy involves selling off your assets to resolve your debts. It stays on your credit report for up to 10 years.
  • Chapter 13: Chapter 13 bankruptcy involves negotiating with your creditors and being put on a structured payment plan. As long as you follow the payment plan, your debts will be forgiven at the end of the term.

Ultimately, the decision to consolidate medical debt is a personal one. If you’re having trouble keeping up with multiple debt payments at the same time, it could be a good option. However, if you’re able to manage your existing payments and you don’t want to risk taking on new interest charges and fees, it may be worth exploring other options.

Here are three questions to help you decide if medical debt consolidation is right for you.

Thanks to recent legislation, it’s now a lot harder for medical debt to hurt your credit. Paid medical debt and outstanding medical debts under $500 have been wiped from credit reports, so medical bills affect your credit less. In addition, you’ll have one full year from the date of your doctor’s visit to pay off new medical debt before it can appear on your report.

That said, larger existing medical debts and new medical debts extending beyond the one-year grace period can hurt your credit. Debt in collections can stay on your credit report for up to seven years.

Yes, medical debt can be negotiated. If you don’t have health insurance, consider asking your provider if they have any financial assistance programs available or if they can simply lower the bill.

On the other hand, if your health insurance company has already paid its share, consider asking your provider for a payment plan instead. Often, healthcare providers will be willing to wait a bit longer to receive payment rather than going through the hassle of sending debt to collections.