Medical Debt Consolidation
Eliminate medical debt to avoid bankruptcy and save your credit.
In 2013 CNBC reported that medical debt was the leading cause of bankruptcy. Things haven’t exactly improved in the years since. The infographic below looks at debt problems caused by out-of-pocket healthcare costs in 2015. You can find more information about medical debt consolidation below.
The credit impact of medical debt
Several Congressional proposals over the past few years aimed to adjust the rules about medical debt in the Fair Credit Reporting Act. The most recent proposal in 2014 would erase punitive damage caused by medical bills you’ve paid. A proposal in 2011 looked to eliminate credit penalties caused by healthcare-generated debt entirely.
Unfortunately, none of these proposals have passed Congress yet. That means standard credit penalties for collection accounts still apply:
- If medical debt goes to collections, your credit report will list the collection account. It appears in the public records section of your report.
- Collections remain as a negative credit report item for seven years from the date you paid the account off.
More than 14 million Americans have credit problems that stem from unpaid medical bills and collections.
How to get out of medical debt
If you have unpaid medical bills that turned into collection accounts, here is what you need to know about the best ways to eliminate the debt.
Can I use debt consolidation?
Yes. There are several ways that you can consolidate these debts with other unsecured debts that you need to pay:
- Use funds from a debt consolidation loan to pay off unpaid medical bills. If you take out a personal debt consolidation loan, you can ask the lender to disburse a portion of the funds you receive to pay off medical debt collectors. This is a type of do-it-yourself debt consolidation.
- You may be able to include unpaid medical bills in a debt management program. If you sign up for a debt management program, you can request for unpaid medical bills to be included. The medical service provider or collection agency must approve the adjusted payment schedule. Otherwise, the debt cannot be included.
Is it in my best interest to consolidate medical debt?
It’s important to note that medical debt does not have any interest rate applied to it. Even if a medical bill passes to collections, it may accrue penalties but there is still no applied interest rate.
This means if you use a debt consolidation loan to get out of medical debt, you convert debt with no interest charges to debt that has interest charges applied. Although it gives you the means to eliminate the collections account, it also means the debt will cost more to pay off. In other words, the total cost of eliminating the debt increases.
With a debt management program, the credit counseling agency calls each of your creditors to negotiate. The goal is to reduce or eliminate interest charges applied to your debt. So including medical debt in the program won’t add interest charges. However, you don’t benefit from the credit counseling agency being able to negotiate on your behalf.
For that reason, a debt management program is not typically used to consolidate medical debt only. You’re missing out on one of the main benefits. People typically only use a debt management program to consolidate medical debt when they have other bills to consolidate, too. If you have a combination of credit cards and other unsecured debts along with medical debt, then it makes sense.
If I don’t consolidate, what can I do?
First, make sure to request a copy of the claim and review it carefully. Medical bills may include charges for procedures you never received. Keep that in mind and make sure the bill is accurate for the medical services you received. If you have several bills and you have questions over their accuracy, you can hire an auditor. They review the bills and work to reduce the amount you owe.
Next, call the original medical service provider. They may be willing to set up a payment plan or accept a settlement offer. A payment plan splits the total bill up into installments you pay over a period of months. A settlement eliminates the debt for less than the full amount owed.
If the original provider won’t accept payment directly, you can work with the collector. Again you want to request either a settlement or payment plan. Be aware that any debt paid for less than the full amount owed also results in negative credit information.