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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Inflation went on a rampage in 2022 as the economy staggered to fully recover from the COVID-19 pandemic, so the last thing anyone needs are crushing medical bills.

Unfortunately, many have them.

A February 2022 survey by Affordable Health Insurance showed the staggering nature of the medical debt issue. The survey found that 55% of Americans have medical debt. Just less than one of four – 23% – owes more than $10,000.

No wonder many consumers wonder what options exist to unburden themselves of medical debt and whether debt consolidation for medical bills is a good option.

It’s important to understand 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 exists in terms of repaying it or even possibly negotiating a lower amount to repay.

What Is Medical Debt Consolidation

Medical consolidation falls under the broader heading of debt consolidation, which combines multiple debts into a single account, paid for with a loan, which is repaid in monthly installments. While consolidation can be used in a variety of debt situations, including credit card debt, in this case it applies only to medical debts.

Consumers obtain a new loan for the total amount of medical debt owed and make one payment to one entity instead of several payments to several entities (Yes, many have more than one doctor or hospital to pay).

When consolidating medical debt, consideration is given to your needs – housing, food, transportation. The monthly payment should fit your budget. However, if you miss a payment there could be serious consequences, including the unraveling of the consolidation process.

Banks, credit unions, online lenders and nonprofit credit counseling agencies are the best choices for medical debt consolidation. We’ll take a look at some options that can help.

How to Consolidate Your Medical Bills

There are several ways to consolidate medical bills. These may include a personal loan, home equity loan or credit card balance transfer. Some debt management programs allow for consolidation as well.

One thing to keep in mind is that a hospital or health-care provider usually will work with you. If you receive a medical bill you know you will have trouble paying, reach out to your provider and see if you can negotiate a payment plan that fits your budget.

Not communicating and not paying will not help. In fact, 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.

Personal Loan

personal loan will pay off the combined medical debts, but leaves you with a monthly payment that includes interest charges, which means you will pay more for your medical debt than you initially were charged.

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. This can be worked out with the provider.

If you do choose the personal loan route, be sure to shop around for the lowest interest debt consolidation loan.

Home Equity

Home equity loans and Home Equity Lines of Credit (HELOC), are based on the equity you have in your home. The equity is determined by subtracting how much you owe from what the current market value of your home is. So, if your home is worth $250,000 and you owe $200,000, you have $50,000 in equity.

Banks and lenders will allow you to establish a line of credit on the total equity, which gives you a home equity line of credit. You typically can then borrow 80% of that equity.

The advantage of a HELOC is you borrow what you need and only pay interest on what you borrow. If you have $50,000 in a HELOC and $20,000 in medical bills, you would borrow $20,000 and pay interest only on the $20,000. In effect, the money borrowed from the HELOC is a consolidation loan based on your home.

Home equity loans should carry the lowest interest rate charges of any loan for medical debt consolidation and the interest is tax deductible. However, doing so demands responsibility because you would be putting a secured asset (your home) at risk for an unsecured debt (medical bills), which is not a good strategy.

If you don’t repay the money borrowed against your home, you could see the bank foreclose on your property. Failure to pay your medical bills will hurt your credit score and likely land you in the hands of a collections agent, but it wouldn’t be putting your home in jeopardy.

Credit Cards

Using credit cards to pay medical debts may seem like a quick fix, but it’s a costly, short-sighted decision. This should be the most extreme last resort.

Even if you were able to transfer medical debt to a 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. There also is the matter of paying a 3%-5% transfer fee on the amount moved to the credit card.

Just making monthly payments on the medical debt would achieve the same result with the benefit of 0% interest, and there is no deadline that will add interest charges to it like there is with a balance transfer card.

In addition, it’s vital to read the fine print of the credit card offer. Frequently a credit card will offer a zero interest charge for, say, 12 months for a balance transfer card, but if you miss a payment or do not meet the 12-month deadline, all the interest accelerates and you’ll  end up with a lot more to repay.

Some health care facilities and doctors will accept medical credit cards, which are like  conventional cards but are designed exclusively for medical expenses. Application forms are sometimes available in doctors’ offices. Sometimes there are low introductory interest rates. Again, read the fine print.

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

Credit Counseling

Counselors from a nonprofit credit counseling agency can assess your income and debts and offer debt-relief solutions to allow you to best address medical debt. Because medical debt typically does not charge interest, credit counseling may be best for those who borrowed money or used a credit card to pay their medical debts. Counselors could lead you to a debt management program that will reduce your credit card interest rate and lower your monthly payment, making it easier to pay off the debt.

Will Consolidating Medical Bills Affect My Credit?

Consolidating medical bills can help your credit score – if you make the regular payments.

Not paying medical bills – consolidated or otherwise – will hurt your credit score.

Medical debt is handled differently than consumer debt. The three major credit bureaus afford 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

Consumers facing medical debts are offered some legal protections. On Jan. 1, 2022, Congress passed a law called the No Surprises Act, which protects patients from surprise medical bills for care that consumers did not realize was not covered by their health insurance plan. This is one of several protections for those with medical debts. Others include protections against debt collectors, when they can call and what they can say.

These credit protections may disappear if you choose to consolidate your medical debts into one loan or credit card.

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. Keep in mind, though, that they might damage your credit report and pursue legal avenues to force you to pay.

You also should 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

Other debt-relief options for medical bills do exist, but they are choices to consider after all others failed.

  • Debt Settlement: This is a chance to make a one-time, lump-sum offer to settle your debt for less than what you owe. That’s the upside. The downside of debt settlement are the fees involved. 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 start, but will tarnish your credit score for 7-10 years.
  •  Debt Management Plans: A debt management plan consolidates credit card debts into one affordable monthly payment. Its selling point is that it helps lower the interest rate on debt. But because there is no interest on medical debt, it’s an illogical approach.

Should I Consolidate Medical Debt?

The key fact that medical debt does not accrue interest should be foremost in your mind when considering a consolidation plan for those debts.

A hospital or medical practice may eventually hand your unpaid bills to a collection agency, but the debt remains interest-free.

Before committing to a consolidation plan, answer these questions:

  • 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 doing an accounting that tells you exactly how much you would have to borrow to eliminate the whole stack of bills.

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 will you 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 when doctors and hospitals charge 0% interest?
  • 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 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.


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