At a Glance
If you or a loved one has recently experienced a medical emergency, the bills probably are piling up. And with many bills creating a large amount of debt, it can feel overwhelming and impossible to pay off.
If you’re facing a mountain of medical bills, you may be wondering if you can consolidate medical debt or if medical debt consolidation is a good idea in the first place. Here’s what you need to know.
- What is medical debt consolidation?
- How do you consolidate medical debt?
- Medical debt consolidation benefits
- When is debt consolidation for medical bills a good idea?
- Does medical debt consolidation affect credit?
- Alternatives to medical debt consolidation
- Frequently asked questions about medical debt consolidation
What is medical debt consolidation?
Medical debt consolidation is the process of taking out a loan to pay off multiple medical bills. You’ll then make only one payment toward the debt consolidation loan. The purpose of debt consolidation for medical bills is to streamline payments and ultimately pay less interest over time by combining all bills into one lower monthly payment.
How to consolidate medical debt
Keeping track of multiple medical bills can be challenging, especially if you’re having trouble paying them back.
- The first step to consolidating medical debt is to have a firm grasp on what you owe, including the bill total, who it’s owed to, and the due date.
- The next step is to contact the medical facility or provider to understand if there is financial assistance or repayment options available to help ease the burden of the debt and keep the debt from going to collections.
- Then, you can begin to consider debt consolidation options. Keep in mind that medical bills don’t have interest, but consolidation options do. This adds to your total debt over time, and can also negatively impact your credit score if you miss payments.
Once you’ve done your research and have decided that debt consolidation is the best option for your financial situation, there are several options to choose from.
1. Debt consolidation loans
Debt consolidation loans can be a great option to consolidate medical debt if you find a lender with a low interest rate.
And if you get a great interest rate, the monthly payment can be manageable over the life of the loan. But be cautious about hidden fees like loan origination fees, and make sure you’re in agreement with the repayment terms before you sign.
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2. Balance transfer credit card
A balance transfer credit card is a popular option for debt consolidation if you use a credit card to pay for medical bills. And if you can lock in a 0% introductory APR offer and pay down your medical debt in that introductory window, you can save a lot of money on interest.
Learn more: Balance Transfer Credit Cards
3. Lines of credit
If you have access to a secured line of credit, like a home equity line of credit (HELOC) or home equity loan, you can consider taking out money to pay off medical debt. These lines of credit generally have lower interest rates than an unsecured personal loan.
But you’ll need to have a plan in place to pay back debt quickly. If a home equity loan or HELOC goes unpaid, you could risk losing your home.
Medical debt consolidation benefits
The primary benefits to consolidating debt, including medical debt, include:
- One monthly debt payment instead of multiple payments
- Combining different types of debt can streamline the repayment process
- You’ll avoid debt being sent to collections and impacting your credit score
- Consolidating can help you stay organized and pay off your debt faster
If you’re able to make consistent, on-time payments, it can help improve your credit score.
When medical debt consolidation is a good idea
Debt consolidation can save you money if the medical bills you’re paying off are accruing a lot of interest, and you’re able to get a loan with a lower interest rate than what you were paying. But keep in mind that you’ll need to have a solid credit score to be approved for a good interest rate on a loan.
If your medical bills are charging low or no interest, it may not be the best time to consider a debt consolidation loan. Shifting several low or no interest payments to one interest-bearing loan could end up hurting you financially over time.
Does medical debt consolidation affect credit?
When it comes to your credit report, medical debt is treated differently than other types of debt like credit cards or personal loans. For example, if you’re working directly with your healthcare provider to pay bills, the debt generally isn’t reported to the major credit reporting bureaus (Experian, Equifax, and TransUnion).
Unpaid medical bills could affect your credit score if they reach collections. There is a grace period for medical bills in collections, though, and they won’t actually appear on your credit report for 180 days. That means you have time to work with collections to reconcile the debt before it has damaging effects.
It’s important to understand that these protections don’t apply once you consolidate medical debt. If you choose to take out a debt consolidation loan or use a credit card balance transfer, the debt is no longer marked as medical and becomes like any other debt you’d have on a personal loan or credit card. And that means any delinquencies are reported to the bureaus and may have negative implications for your credit score more quickly.
Alternatives to medical debt consolidation
If you’re on the fence about medical debt consolidation, you may find success in an alternative option, like:
- Credit counseling: Many nonprofit credit counseling agencies can help you create a debt consolidation program or debt management plan. In these arrangements, you’ll make a single monthly payment to the agency. Then, they’ll take care of ensuring proper payments go to all of your creditors. This can help immensely if you struggle to get the money out of your account to creditors on time.
- Medical facility payment plans: Sometimes, the medical facility where you incurred the charges can help set up a payment plan. You may end up paying less each month over a longer period. But, this debt is generally not reported to the credit bureaus, and likely won’t help or hurt your credit score.
- Negotiating: Sometimes, simply calling the provider or hospital to explain your situation can result in a discount. But be wary of services that charge you money to negotiate on your behalf. Instead, choose to work with local nonprofits or free programs through the medical provider.
If you’re deep in medical debt, you may be desperate for a way to decrease or eliminate your monthly payment. And in the right situation, medical debt consolidation can be a good idea. But be sure to assess your financial situation, credit score, and alternative options before committing to a medical debt consolidation loan.
When you take out a debt consolidation loan, you can request the lender send some of the funds to pay off medical debts from your provider or in collections.
Related: How to Pay Off Debt in Collections
Medical debt consolidation may be right for you if you are unable to pay your medical bills and they are at risk of or have already gone to collections. If your bills are not in collections or are not charging interest, debt consolidation may not be right for you because you’ll be adding interest to your total debt and could impact your credit score.
There are a number of ways to pay off medical bills other than consolidation, such as working with a medical bill advocate, setting up a payment plan with the medical facility or collection agency, exploring debt settlement options, investigating medical debt forgiveness, and others.
Related: How to pay off your medical bills
If you have medical debt, the first step is to reach out to the medical facility, provider, or collections agency who has your debt and ask about any repayment plans or other assistance options available. Then, choose a consolidation or repayment option that works for your situation and can get you out of debt the fastest.
If you don’t pay your medical bills on time and avoid making payments, the medical facility can send your debt to a collections agency. The debt collector will contact you through letters, phone calls, and even emails to get you to pay your debt. Once sent to collections, your credit score will decrease significantly, and you can be charged fees, penalties, or even be sued until you pay.
Related: Medical bills and collections
Avoiding repaying your medical debt can result in the debt being sent to collections agencies. Not only will this decrease your credit score by 100 or more points, but it can also mean legal action if you continue to miss payments.
The first thing that happens is you’ll be contacted by the collection agency. If your account is 180 days past due, it will display on your credit report and drop your credit score. Once it’s in collections, you may need to pursue more aggressive ways of repaying the debt, such as consolidating or settling.
Some medical expenses, as outlined in the IRS Publication 502, can be included as tax deductions if they are “primarily to alleviate or prevent a physical or mental disability or illness.” Use a Schedule A IRS tax form to claim itemized deductions on your tax return.
Related: Are medical expenses tax deductible?