How to Consolidate Medical Bills

If the cost of health care is crushing you financially, the most practical solution could be medical debt consolidation.

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With millions of Americans out of work, their healthcare options dwindling and the COVID-19 pandemic causing the economy to plummet, medical bills could be piling up.

A Salary Finance survey from earlier in 2020 found that almost a third of working Americans have some kind of medical debt and about 28% of those individuals have an outstanding balance of $10,000 or more on their medical bills. A whopping 54% of people with medical debt admitted that they defaulted on paying those bills for a variety of reasons.

Those issues have consumers wondering about their options for ridding themselves of medical debt and whether debt consolidation is a good option.

Medical debt consolidation means combining your various medical bills and taking out one loan to pay them all off. You are still in debt, but you only have one creditor and one payment to make each month, instead of multiple payments to multiple creditors.

You should realize that medical debt isn’t like credit card debt or a bank loan. In most instances, there is no interest attached to medical debt and much more leeway in terms of repaying it or possibly negotiating a lower amount to repay.

How to Consolidate Your Medical Bills

Medical bill with stethoscope on calculator

There are several forms of medical debt consolidation, including a personal loan, home equity loan, credit card balance transfer and some debt management programs allow for it.

When you first receive a medical bill, you should try to negotiate a payment plan that fits your monthly budget. Failing to notify your medical provider that you likely won’t be able to pay a debt is a major mistake that ultimately results in a greater cost to you.

Banks, credit unions, online lenders and nonprofit credit counseling agencies are the best choices for medical debt consolidation.

Here is a closer look at options that can reduce your financial obligations.

Personal Loan

personal loan will pay off the combined medical debts, but leaves you with a monthly payment that includes interest charges.

Medical debts typically don’t have interest charges, so it would make more sense to make monthly payments directly to the medical provider and skip the interest charges associated with a personal loan.

If you do choose the personal loan route, be sure to shop around for the best interest rate available.

Home Equity

Tapping into your home equity and rolling medical debt into your home-loan debt is an option worth investigating. Home equity loans should carry the lowest interest rate charges of any loan for medical debt consolidation and the interest is tax deductible.

However, this strategy could be particularly costly considering that you would be putting an asset (your home) on the line for an unsecured debt (medical bills), which is never a sound strategy.

If you fail to make payments on a home-equity loan your lender could foreclose on it. Failure to pay your medical bills will hurt your credit score and likely land you in the hands of a collection agent, but at least it wouldn’t be putting your home in jeopardy.

Credit Cards

Using credit cards to pay off medical debt would certainly qualify as a quick fix idea, but it also qualifies as a costly, short-sighted decision.

Even if you were able to transfer medical debt to 0% balance transfer card, you would have to pay off the debt in the allowed introductory period (typically 6-18 months) or face interest charges starting at 16% or higher.

Just making monthly payments on the medical debt would achieve the same thing since you’re already at 0% interest and there is no deadline waiting that will add interest charges to it like there is with a balance transfer card.

The better solution is to alert your medical provider that you expect to have problems paying those bills and options such as a sensible payment plan or a reduced judgement might be presented. Using credit cards will only compound your problems in terms of paying off the bills.

Will Consolidating Medical Bills Affect My Credit?

Consolidating medical bills can have a positive effect on your credit score, as long as you are making monthly payments.

Not paying your medical bills — consolidated or otherwise — will have a negative impact on your credit score.

Medical debt is handled differently than consumer debt and the three major credit bureaus afford it a 180-day grace period before adding it to a consumer’s credit report.

The grace period allows time for:

  • Correcting billing errors made by the provider
  • Negotiating a payment plan with the provider
  • Hiring a medical advocate to resolve costs and payment plans on your behalf
  • Provide time for the insurance company to make approved payments
  • Coming up with a consolidation plan and payment arrangement
  • Determine whether you qualify for financial assistance from charities, churches or possibly state or federal programs

If you are not able to get help paying medical bills in the 180-day grace period, the provider likely will turn the account over to a collection agency, which will report it to the credit bureaus.

Medical debt stays on your credit report for seven years and could cause a 50-100 point drop in your credit score.

It is worth noting that if the medical debt is paid off by an insurance company, it can be expunged from your credit report. If the consumer pays off the medical debt, it may stay on your report for seven years.

Medical Debt Collections

Collection agencies must follow state and federal laws that protect consumers from unfair collection practices. If a debt collector is pursuing you, research your legal protections and how to file a complaint. But they can do damage to your credit report and pursue legal avenues to force you to pay.

You should also ask the collection agency to specify the amount of debt and contact the original medical provider to verify the amount. Nearly two-thirds of people who complained to federal regulators about medical debt collection issues complained that they were pursued for money they didn’t owe.

Medical bills have shelf lives. If a medical debt is more than seven years old, it falls under a statute of limitation and will no longer be a factor in your credit report. For that reason, it’s best to tackle your most recent bills, since they will remain on your credit report the longest.

Medical Debt Consolidation Alternatives

There are other debt-relief options for medical bills, but they come with an advance warning: These are choices to consider after all others failed.

  • Debt Settlement: This is a chance to make a one-time, lump-sum offer settle your debt for less than what you owe, sometimes only 50%. That’s the upside. The downside of debt settlement is the fees involved and taxes on any debt forgiven, might wipe out any gain you thought you realized
  • Bankruptcy: This is the last thing anyone wants, but it sometimes is the only solution for consumers overwhelmed by medical debt. Bankruptcy can  provide emotional relief and a fresh financial start, but will tarnish your credit score for seven to 10 years.
  • Debt Management Plans: A debt management plan consolidates credit card debts into one affordable monthly payment. It’s selling point is that it helps lower the interest rate on debt, but since you don’t pay interest on medical debt, you lose the big advantage.

Should I Consolidate Medical Debt?

Before contemplating a consolidation plan, you should focus on a key fact: Medical debt doesn’t accrue interest.

Though a hospital or medical practice eventually will hand your unpaid bills to a collection agency, the debt is interest-free. Answer these questions before committing to a consolidation plan:

  • Does it make financial sense to consolidate and add interest to the debt?
  • Will such a plan actually eliminate my debt or only extend the financial suffering until I need to file for bankruptcy?
  • Can I accept the terms of the plan and what assets would I consider using as collateral?
  • Do I need help, and if I do, what will it cost?

Getting Started

The first step in debt consolidation is getting all your medical bills together, making sure the bills are accurate and do an accounting that tells you exactly how much you would have to borrow to eliminate the whole stack.

The next step would be to choose the option that makes the most financial sense for your situation. To do that, try asking yourself these questions:

  • If you choose to take out a personal loan to pay off your debts, how much interest are you having to pay on top of the existing bills?
  • Credit cards are a quick fix, but an extremely expensive one. Is it worth paying double-digit interest on a medical debt, just to see it go away?
  • A home equity loan puts your house at risk. Should you really risk a secured asset to pay off unsecured loans?
  • Would consolidating your medical bills into one monthly payment save you money, protect your credit score and keep the collections agencies at bay?

If you are confused or overwhelmed by the situation, it might help to get a free consultation with a professional from a nonprofit credit counseling agency. The counselors there are trained to help you answer all of these questions and give you educated advice as to the option that works best for you.

Sometimes, good advice can serve as the best medicine for someone sickened by medical bills.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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