Debt Consolidation

How to Find Medical Debt Relief, From Negotiating Bills to Consolidating Debt

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Medical bills are increasingly wreaking havoc on people’s personal finances. In 2016, one in five working-age, insured Americans reported having problems paying medical bills, according to a Kaiser Family Foundation/New York Times survey. Among the uninsured, 53% said they struggled with medical debt.

“It’s a tremendous problem,” said Ken Gross, managing shareholder of Thav Gross, a law firm in Bingham Farms, Mich. “With the changes in health care laws, deductibles became enormous. People can easily find themselves in a situation where they have $5,000, $10,000 — even $15,000 — in bills from hospital providers for relatively regular care.”

For those with serious or chronic illnesses, or those who are uninsured, the prospects are even worse. If you find yourself in medical debt, here’s what you need to know, along with some options for dealing with it.

Minimizing costs while receiving medical treatment

What’s frustrating is that people often face sticker shock when the bills start arriving, said Gross. “No one tells you how much the bill is going to be. They provide the service, insurance pays something and then all of a sudden you’re getting a huge bill,” he said.

To help avoid that situation, Leslie H. Tayne, a New York-based financial attorney and author, suggests speaking up during your care or hospital stay (as much as possible). “During hospital intake, say ‘I want to make sure everyone who sees me takes my insurance,’” she said.

You can also ask what your copays will be every time they do a test on you. “Many times you get hit with anesthesia bills because that group is not connected with the hospital,” she warned. By being proactive and asking questions, you might be able to keep at least some of the costs in check.

Finally, before you start paying, make sure that everything on your bill is accurate. It’s within your rights to call and ask for an itemized accounting of all of the services provided. If at that point you don’t believe you were charged the right amount, then you have a basis to dispute the bill.

4 ways to get medical debt relief

1. Negotiate with your medical provider

Medical debt works differently than other debts like credit cards or loans, explained Tayne. For instance, there is more room for negotiating your medical bills. “Definitely call [the provider] and have a conversation with them,” Tayne recommended.

First, figure out when you might be able to start paying it off and how much you can reasonably afford monthly, and be up front. For instance, if you’re recovering from an illness and out of work, you might not have cash flow for a while.

“Let them notate that you have a willingness to pay, then ask them for a time frame and flexible payment options that work for you,” said Tayne. If you can only afford $20 per month, sometimes even that will suffice. However, it’s unlikely that you’ll be able to get hospitals or doctors to budge on the actual cost of the bill.

2. Consolidate your medical debt

You may have heard about debt consolidation as a tool to pool existing credit card bills and loans into one bill to simplify repayment. The advantage of doing this is to reduce your interest rate. With medical debt, though, there is usually no interest, so medical debt consolidation may not be the right choice for you.

“With consolidation, you’ve now turned your medical debt into something that’s going to cost you more money, and you can end up with a bigger problem,” said Tayne.

The exception is if you opted to pay for your medical care on a medical credit card that charges interest (and therefore is more akin to credit card debt). In that case, consolidation could be a viable option.

If you do want to look into the consolidation route, here are four options to do so (and cons to consider):

1. Personal loan: A personal loan may allow you to simplify your bills by combining all existing debts into one new loan with only one payment per month to worry about instead of several. In most cases, the reason for going this route is to score a more favorable term or a lower interest rate than you were previously paying. Interest rates on a personal loan, however, will largely depend on your credit score and other factors.

That being said, in the case of medical bills, moving from zero-interest medical debt into a personal loan that has interest really doesn’t make sense.

2. Home equity loan: A home equity loan allows you to borrow from the equity in your home. Although it might seem like a good solution on paper, taking a home equity loan to pay off debt of any kind can be risky since you’re using your home as collateral. Ultimately, you’re putting your house on the line if you are unable to pay the loan in the future.

Since medical bills are usually flexible as far as allowing you extra time for repayment, borrowing from your home is not the best option.

3. 401(k) loan: If you have a 401(k) through your employer, you do have the option to borrow from those funds. These loans typically have a lower interest rate, and you’ll be paying interest back to yourself rather than to a lender. You’ll typically have five years to repay the loan. There are drawbacks to a 401(k) loan to consider, though. If leave your job before your loan is paid off, you would have to repay it within a short period of time, typically 60 days or so. Additionally, if you default on any terms of the loan, you could lose your retirement savings. Generally speaking, it’s never recommended to drain your retirement funds to pay off debt, and that’s even more true when it’s medical debt, for which you can likely work out a payment plan.

4. Balance transfer credit card: Some credit cards have generous promotions to lure in new customers with good credit. Among these, you may find cards offering low or no balance transfer fees and 0% introductory APRs. With this type of credit card, you could consolidate debt by transfer existing balances onto it. Doing so could save you money on interest.

For medical debt, though, it’s risky and there’s no real benefit. If you can’t finish paying off your debt by the time the introductory period expires, you’ll be hit with interest on a debt that had no interest in the first place. Some cards also charge deferred interest, meaning you’d have to pay interest retroactively on any remaining balance after the promotional period ends.

3. Seek medical debt relief

Medical debt relief is when you hire someone to negotiate on your behalf to lower the amount that you owe. You may work with a credit counselor, who can take a look at your overall finances and then lay out your options as to how to best improve your situation. You can usually get a free consultation by working with a nonprofit credit counselor, but fees may apply for any services you pursue thereafter.

One such service is a debt management plan. With a debt management plan, you make one fixed payment to the credit counselor each month for a set amount of time (usually a few years), and they take care of your debt obligations for you. They also work with your lenders and creditors to try to lower existing interest rates.

While this can be helpful for some consumer debt situations, don’t forget that medical debt works differently, said Tayne. That’s because the amount owed on medical bills is usually not negotiable since there is no interest being charged. However, there is a tremendous amount of flexibility as far as payment plans go, said Tayne.

What’s more, while debt settlement professionals have relationships with and knowledge about various creditors and banks that can help them negotiate reduced amounts, with hospitals and doctors, that’s not usually the case.

4. Consider filing for bankruptcy

Although you might think finding any means possible to pay your medical debt is the honorable thing to do, the wrong approach can cause long-term financial ruin, said Gross. “There are a lot of baby boomers that have no retirement income because they’ve taken from their IRA and 401(k) to pay medical bills because they think it’s the only alternative they have — that’s a shame,” he said.

For someone who has crippling medical bills in the tens or hundreds of thousands, bankruptcy might turn out to be the best solution. Though bankruptcy can alleviate your medical debt load, there are a few caveats.

First, you should only turn to bankruptcy if you have significant medical (and other) debt. “If you’re dealing with a $5,000 bill and no other creditors, that’s too small of an amount,” said Gross. Remember that bankruptcy will remain on your credit report for up to 10 years.

Second, you want to time it right if you decide to declare bankruptcy. “You need to be done with your medical procedures,” said Tayne. Wiping out existing medical debt won’t help much if you need more treatments and procedures that will start the bills up again.

Finally, realize that it’s a process and that there are two types of bankruptcy:

  • Chapter 7 bankruptcy erases all debts, but you must pass a means test that proves you truly can’t afford to pay your debt. The downside is that if you own assets, you may have to liquidate them as part of the deal.
  • Chapter 13 bankruptcy restructures all of your debt and sets up a repayment plan with your creditors that lasts three to five years. This type of bankruptcy is easier to qualify for and you can retain your assets, but you’ll still be responsible for repaying most of the debt.

If you’re considering bankruptcy, it’s best to work with an attorney specializing in bankruptcy to find out if it’s a good option for you.

Medical debt in collections: What to know

Your medical debt will only be sent to collections after many months of not paying your bills and repeated notifications that your debt will be transferred, said Tayne. “The reality is it’s challenging to deal with medical bills when you’re sick,” she said.

However, it’s important to not ignore your medical debt. Once your debt is in collections, you can be sued. “Collection laws are different state to state, but you could have wages garnished, accounts frozen or a lien on property,” said Tayne. If you have no income or assets, though, Tayne noted that there isn’t much they can do to you.

Of course, the debt doesn’t really ever disappear. The statute of limitations, which refers to the number of years that a debt collector can sue you for a debt, is typically three to six years for medical debt, but it can be considerably longer in some states. Once the statute of limitations has passed, you technically still owe the debt, but the debt collector can no longer sue you to recoup it. Beware that making any payments after the statute of limitations has elapsed will restart the clock, reopening the possibility of legal action.

What happens if you don’t repay your medical debt

Not paying your medical debt can eventually affect your credit score and then stick around for years to come. However, you likely won’t see an immediate impact. Typically, your medical bills won’t be reported to the credit bureaus until they go into collections or you’re sued. At that point, though, it would remain on your credit report for seven years.

On the positive side, much of the credit industry doesn’t treat medical debt the same as other types of debt. In fact, with the FICO Score 9, the newest version of the popular credit scoring model, medical collections will have less of an impact on your credit score than other obligations.

The bottom line

Your best bet when facing down medical bills is to take a breath, evaluate your situation and then work directly with the providers to find a solution that will keep you out of collections or lawsuits, said Tayne. In extreme cases, filing for bankruptcy most likely has more benefit to you than medical debt consolidation or medical debt relief, according to experts. When in doubt, though, it’s always best to speak to a professional who can help guide you.


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