What Is Medical Debt Consolidation?
Paying off your medical debt is not as straightforward as other types of debt such as credit card or loan. As per the CFPB (Consumer Financial Protection Bureau), out of all the overdue debt recorded on credit reports, 52% relates to medical expenses. Although some efforts have been made to address this issue, the underlying problem is still stressing out a lot of people.
Should You Go for Medical Debt Consolidation?
It is important to note that medical debt does not accrue any interest. Although a healthcare facility or hospital will transfer your bills to a collection agency, you do not have to pay any interest on your bills.
If you try to cut down on your payable amount by consolidating personal loan, a credit card debt, or HELOC (home equity line of credit), the new debt will contain interest. Rather than owing the hospital, you owe to the source of your new credit where each month interest keeps accruing.
Don’t go for medical debt consolidation unless you have to pay money to other credit. However, if you are unable to find any route to enjoy medical debt relief, medical debt consolidation might be your only option.
How to Go About Medical Debt Consolidation?
Medical debt consolidation requires you to secure a loan, pay all the debt, and repay what you owe at the earliest to prevent paying any interest. Here is how what you need to do for medical debt consolidation.
1. Personal Debt Consolidation Loan
Even if you have a low credit score is, a debt consolidation loan is a possibility. The downside is that you can get affordable rates only if your credit score is somewhere between the good to excellent range.
Here are some debt consolidation tips:
- Beware of companies that offer unrealistically low-interest rates.
- If you have bad credit, you won't qualify, despite what a fast-talking salesman tells you. Sometimes they want to give you the “bait and switch.”
- Beware of companies that receive bad reviews.
- Make sure to read up on companies that are advertising personal loan offers like Ladder Advisors Reviews, Corey Advisors Reviews, Carina Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Pine Advisors, Credit9 Reviews and Americor Funding.
- Do your homework. Don't take the first offer that comes your way. Read reviews on personal loan websites like Best 2020 Reviews.
After the loan approval, you can adopt multiple strategies. If you have more than one medical bill, you can focus on them at the same time, or you can pay off one large bill at once. For convenience, try to find loans with a low-interest rate and make sure that you can pay back without facing any penalties. It is important to learn the truth about debt consolidation.
2. Credit Cards
Usually, credit cards come up with high-interest rates—more than an unsecured or secured loan. Perhaps, this is why many financial experts discourage the use of credit cards for medical debt.
That being said, some credit card types can offer favorable conditions. These are the 0% APR introductory offer cards and the medical credit cards. Both of them boast initial periods that have little to no interest. To make the most of this option, you must calculate how to repay all the medical debt during the window of low interest. If you are confident that you can pay back the loan in the low-interest period, it essentially works the same as a low-interest loan. Unfortunately, if you cannot pay it within the low-interest window limit, then you will be forced to pay a significantly high-interest rate, even more than a conventional credit card.
3. Debt Management Program
If for some reason, you don’t like the idea of taking a personal loan or go with the credit card option, then a debt management program is a worthy alternative.
In a debt management program, you avail the services of a credit counseling agency. They carry on negotiations with your creditors and formulate a payoff plan. You pay monthly payments to the agency, which goes on to pay the creditors. However, your creditors continue to send billing statements, so you can keep an eye on how much of your debt is reduced.
The good news about this process is that it allows saving finance charges and other fees. On the flip side, it forces you to close out your credit accords, which can lower your credit score.
How to Move Forward If Medical Debt Is in Collections?
Your credit score can be affected if your medical debt gets reported. A doctor or hospital rarely reports an outstanding bill, but if they hand it over to a collection agency, the odds are stacked against you.
Once your medical debt makes its way to the collections, you can no longer take it passively. Look for any options to pay off the debt as soon as possible. To do this, you can hold negotiations with the collection agency to decrease the owed amount.
You might not be too thrilled to know that medical debt stays on the credit report for seven years. Meanwhile, make sure that you don’t get late in payment related to other accounts and boost your debt-to-available credit ratio.
What If I Don’t Want to Go for Medical Debt Consolidation?
If medical debt consolidation does not seem like the best option, you have multiple other options to choose from.
If your income matches the income criteria and household size, then Medicaid can offer much-needed respite to pay off your medical costs. Go to a local social services agency or health department to apply for Medicaid. You will be required to show bank statements and monthly expenses. This option can go on to cover your whole debt. But, make sure to remain transparent during the whole process and report your income changes—both increase and decrease—regularly.
In-House Medical Financing
One of the least popular methods to reduce medical debt is to use the in-house financing option offered by the medical provider. In such a program, a structure repayment plan is made with interest. Going by the owed amount, you might either reduce your payment or receive a longer payoff time. This option caters to people with poor credit who are unable to get favorable rates for a personal loan or credit card. The drawback is that it comes with a higher interest rate.
By following the right track, you can pay off your medical debt without any hiccups, thanks to a wide range of available options. However, when it does make sense, medical debt consolidation can add a lot of value and help you get out of the debt quickly.
If you have made up your mind to go with medical debt consolidation, avoid subprime lenders who have are notorious for offering high-interest rates to consumers with poor credit.
If you think you have too much debt, read A Review of Enron.