How to Pay off Medical Debt

Even if you have good health insurance, a costly medical procedure or lengthy illness can saddle you with a substantial amount of medical debt. If you have an emergency fund or other savings to draw on, you could be OK. Otherwise you may need to negotiate with your medical provider to arrange for affordable minimum monthly payments until the debt has been paid off. Here are nine steps that can make the process easier.

1. Make Sure You Really Owe the Money

Medical bills are notoriously inaccurate. According to one widely published report, 80% of bills contain one or more errors. So, whenever you receive a bill, especially a substantial one, try to review it closely. (Ask for an itemized bill if you didn't get one.) Among the most common errors are duplicate charges for the same service and charges for services you never received. If you don't understand a particular charge or its cost, your provider should be able to explain that to you.

If you have private insurance, watch out for so-called "surprise medical bills." These are unexpected medical bills you receive, typically from a provider that isn't part of your health insurance carrier's network. Anesthesiologists and emergency room doctors are among the most common surprise billers. More than half of all ambulance rides also result in a surprise bill, at an average cost of $450.  

Surprise bills can be unusually high because the provider and your insurer do not have a negotiated rate, and the provider can bill you for whatever amount the insurer didn't pay. This practice is commonly referred to as balance billing. Some states have laws to protect consumers from surprise bills, and a federal law, the No Surprises Act, is scheduled to go into effect on Jan. 1, 2022. Note that if you have Medicare or Medicaid, you should not receive surprise bills because those programs forbid balance billing.

2. Try to Negotiate It Down

Even if your bill is accurate, you may be able to negotiate for a lower amount. A 2021 LendingTree
survey found that three-quarters of respondents had attempted to negotiate a medical bill and 93% of that group had succeeded in getting their bill reduced or dropped altogether.

As that success rate suggests, hospitals and medical practices are accustomed to patients
lobbying for discounts and are often prepared to reduce bills if asked. You'll make the most persuasive case if you can show that paying the full amount would be difficult or impossible based on your current financial situation. There is certainly no harm in asking.

Under the Affordable Care Act, nonprofit hospitals (which account for most hospitals) must make financial assistance available to low-income patients. They must also post their policies online. If you qualify, you could be eligible for a full or partial reduction of your bill. This assistance is sometimes referred to as charity care.

3. Ask for a Workable Repayment Plan

The medical provider may also agree to spread out your payments in a way that will be manageable for you. (Before you ask, try to have a number in mind that takes into account your income and other regular expenses.) According to the National Foundation for Credit Counseling, many
providers will arrange for a low- or no-interest repayment plan. Remember that this is in the provider's interest as well as yours; better to get their money over a period of time than never to see it at all.

Conversely, if you have enough money to cover your medical debt, you may be able to persuade the provider to give you a discount for paying the bill by cash or check. Not only will the provider receive its payment right away, it will also avoid credit card processing fees.

4. Seek Help

There are a variety of services you can draw on for assistance with medical bills, some free, some not. For example, there are individuals and companies you can hire to negotiate on your behalf. Groups like the Alliance of Claims Assistance Professionals, the Alliance of Professional Health Advocates, and the National Association of Healthcare Advocacy have online directories that you can search for one near you.

The National Foundation for Credit Counseling can direct you to a member agency that will offer advice on managing your debts. Some credit counseling agencies will also help negotiate a repayment plan with creditors.

In addition, there are philanthropic foundations and other organizations that help patients pay medical or prescription drug bills. One of them is the PAN Foundation, which also provides a list of other funding sources on its website.

5. Prioritize Your Debts

Chances are that you have other financial obligations besides your medical debts. If you don't have enough income or other resources to cover them all, you'll need to prioritize. Your most urgent debts probably involve keeping a roof over your head—monthly mortgage or rent payments, utilities, and so forth. Medical debt may be lower on the list. A credit counselor, if you see one, can help you sort that out. Even if you are unable to pay certain creditors, be sure to reach out to them
and let them know what is going on.

6. Be Aware of the Impact on Your Credit

Unpaid medical debts, like other missed bill payments, reflect poorly on you and can have a negative effect on your credit score. However, that will not happen immediately, so you have some breathing room.

According to Equifax, one of the three major national credit bureaus, most healthcare providers do
not report late bill payments to it or its two main competitors (Experian and TransUnion), so they typically won't be reflected on your credit reports or factor into your credit score.

But if the provider turns your debt over to a collection agency, that agency may report the information to the credit bureaus. Fortunately, under a rule enacted by the credit bureaus in 2017, it will not appear on your credit report before another 180 days have elapsed. That gives you additional time to pay the debt or negotiate a plan to do so.

Beginning July 1, 2022, once your medical debt is fully paid it will no longer be included on credit reports from Equifax, Experian, and TransUnion, even if it has been listed on your report for several years. Additionally, the current six-month timeframe, when the medical debt first appears on your credit report, will be lengthened to one year.

In 2023, the three consumer credit reporting agencies will no longer include medical debt in collections under $500 on credit reports.

7. Avoid Taking on Credit Card Debt to Pay Your Medical Debt

Putting your medical bills on a credit card is usually a mistake unless you're sure you can pay off the credit card bill in full before interest begins to accrue. With credit card interest rates averaging 17.13%, you'd simply be postponing the eventual reckoning and racking up a lot of additional debt in the meantime. Plus, if you're delinquent in making at least the minimum monthly payment on your credit card bill, that will go on your credit report right away.

One exception might be using a new credit card with a 0% interest introductory offer or putting the debt on an existing card and then transferring your balance to such a card. However, if your financial situation is such that you're struggling to pay medical bills, you may not qualify for one of these cards.

Generally speaking, your best option is to pay your medical bills with a check or debit card—and to make sure you get a receipt. You'll need a receipt if you want to obtain reimbursement through either a flexible spending account or health savings account if you have one. You'll also want to be able to prove that you paid in case the provider bills you again for the same services.

8. Consider Other Types of Loans

If you own a home and have some equity in it, taking out a home equity loan or line of credit could be an option for paying your medical debt. These loans tend to have relatively low interest rates and can be repaid over a period of five to 20 years. The downside is that they are secured by your home, and you could lose it if you are unable to keep up with the payments.

Another option for homeowners is a cash-out refinancing. Essentially, you pay off the balance of your current mortgage with a new mortgage for a higher amount, based on your equity in the home. You can then take the difference between the two amounts in cash and use it for any purpose you wish, including paying off debts. A downside here is that you'll most likely have higher mortgage payments on the new loan.

Still another possibility is a personal loan. These loans are generally unsecured, so you're not putting your home at risk. However, they carry higher interest rates than secured loans, and you may not qualify for one—or one at an affordable interest rate—if you already have a substantial amount of debt. Some lenders offer personal loans specifically for paying medical bills, often referred to as medical loans.

9. Declare Bankruptcy if You Must

Close to 60% of all consumer bankruptcies involve medical bills. But bankruptcy has serious financial consequences for years to come, affecting your ability to get new credit, the rates you might pay for insurance, and even whether some employers will hire you. So it should generally be one of the last options for you to consider.

If bankruptcy appears to be your only recourse, you'll need to follow a series of steps prescribed
by law. One of them is completing a credit counseling session with a government-approved credit counseling agency and obtaining a certificate to file with your bankruptcy petition. The counselor will review your situation and discuss possible alternatives to proceeding with the bankruptcy.
The federal bankruptcy court closest to you can provide you with a list of approved counselors. If you do decide to go ahead, you will most likely need to hire a lawyer.

The Bottom Line

Medical debt can add up quickly, but you have a number of options for dealing with it. Most importantly, concerns about medical debt shouldn't cause you or a family member to delay seeking the care that you need. Medical debt is not the worst thing in the world.