Some expenses, such as utility bills and car payments, are relatively easy to budget and plan. In contrast, medical expenses usually arise suddenly and can be much more difficult to anticipate and pay. Even for someone with good health insurance coverage, the out-of-pocket costs of an emergency appendectomy, an artificial knee replacement or even a routine root canal are usually enough to deplete all your savings and leave you with large debts for a long time. After finishing your treatment.
In turn, unpaid medical debts usually generate low credit scores, which can burden consumers with higher mortgage payments for the next few years or prevent them from taking loans to buy a car or start a business.
Medical costs have grown faster than the income of most Americans for so long that, according to recent surveys, more than half of US consumers. They cannot pay even $ 500 for unexpected or other medical expenses. It is not surprising that many of us are looking for better ways to manage and pay our increasingly large medical debts.
Mountains of medical debts
A survey of the Kaiser Family Foundation conducted last year revealed that 29 percent of Americans had difficulty paying their medical bills, causing them to spend less on food, clothing and other basic living expenses. About a quarter of respondents said their medical bills have also led them to postpone recommended medical care, medical tests or prescriptions. Not surprisingly, the problem is worse for those with lower incomes. A recent Federal Reserve Report on the economic well-being of US households. He revealed that almost 40 percent of families with annual incomes of less than $ 40,000 were left without at least some medical treatment last year.
The Office of Consumer Financial Protection (CFPB) reported that in 2014, 43 million Americans had overdue medical debt on their credit reports, and that the incredible 52 percent of that debt was for medical expenses. Senator Ricky Darbin (D-IL), who recently co-sponsored legislation to prevent medical debt from continuing to harm consumer credit scores once canceled or liquidated, argues that “the main reason for personal bankruptcy in the United States is medical bills. “
Those who work for large companies and in the public sector are more likely to have their medical expenses covered by health insurance, although they may incur significant medical debts. But even though more Americans have been able to obtain insurance coverage since the passage of the Affordable Care Act in 2010, millions of people who are self-employed, unemployed or work for small businesses still lack affordable health insurance. And for those who have adequate health insurance, the important thing after a serious illness or accident is not if they will end up with large medical bills, but what is the most affordable and least painful way to pay the resulting debt.
Expensive credit cards
When a large medical bill arrives it is tempting to simply take out your trusted credit card and pay it, or at least the amount your credit limit allows. However, most people cannot immediately pay off the total balance of their credit card loan and instead end up paying important medical debts over a period of months or even years. And unfortunately, having a large credit card balance month after month can add thousands of dollars in interest to the final cost of the loan.
Credit cards are usually one of the most expensive forms of loans for medical expenses. According to BanRate, credit card interest rates have averaged about 17 percent per year for borrowers with strong credit ratings, but can easily reach 24 percent for those with not-so-good credit scores. Other alternatives, such as personal loans for medical bills, offer annual interest rates starting at 5 percent (although interest rates for riskier borrowers can be much higher).
Before resorting to paying medical debts with your credit card, consumer finance experts suggest that you explore some of the following alternatives, including:
- Go direct Some doctors or hospitals are willing to establish direct payment plans, sometimes without interest, for patients without adequate insurance or who cannot pay their bills immediately. Although most medical offices prefer not to get involved in the loan business, direct payment plans can sometimes reduce your costs of dealing with insurers or going to credit agencies to pay off your debts. Before accepting a direct payment plan, make sure both parties have clear terms and conditions, and what will happen if you do not make the agreed payments.
- Real estate guarantee Homeowners with enough capital in their home can use a home equity loan or home equity line of credit (HELOC) to pay their medical bills. Most home equity loans offer a fixed interest rate and a payment schedule for a specific loan amount, while HELOCs generally have variable interest rates and allow borrowers to withdraw funds when necessary from a line of credit. Credit approved previously. Before choosing any of these options, make sure you understand the difference between the two types of loans. And remember that both are guaranteed by the capital of your home. So if you don’t pay, you could lose your home.
- Personal loans. One of the most convenient and flexible ways to pay medical debts or to finance additional procedures, such as cosmetic surgery or to lose weight, is with a personal loan. Interest rates on personal loans can vary widely, from about 5 percent to almost 36 percent per year, depending on the lender and the borrower’s credit history. So, don’t automatically assume that the best solution for you will always be a personal loan. But with the generally low interest rates in effect and the high loan limits available of $ 50,000, many borrowers consider these loans a good option to combine multiple medical bills into a single, easy-to-manage monthly loan payment.
Personal loans have become increasingly popular for debt consolidation
Especially among consumers who can sometimes cut their interest payments in half by refinancing credit card debt with high interest rates on a fixed rate loan and lower cost. Personal loans can also be used to pay for medical or moving expenses, home improvement or a variety of other purposes. And since most lenders don’t ask borrowers what they plan to do with the loan funds, these are really “personal.”
Unlike other types of credit, personal loans do not have to be “guaranteed” for the value of a home or car guarantee. Conventional lenders generally require some type of value that can be recovered if borrowers are late in paying their loans. Personal lenders, on the other hand, evaluate loan applications based strictly on the applicants’ financial criteria, such as credit rating, income and cash flow.
Best of all, since most borrowers apply for personal loans online and there are no collateral assets to verify, personal loan applications tend to be processed fairly quickly. Many personal loans, in fact, are reviewed and approved in less than a day.
So, if you are one of those who have difficulty paying for medical treatment or accumulated medical debts, consider taking out a personal loan before taking out the credit card and starting to accumulate unnecessary interest expenses.