How to consolidate medical debt.
Medical debt remains one of the most challenging financial burdens for many people. Most years anywhere from 20 to 30% of Americans are paying off some form of medical debt. Households spend nearly $5,000 annually on healthcare and millions of people face the strain of unpaid bills getting sent to collections. Consolidation isn’t always the most obvious route however when done thoughtfully, it can significantly help and learn more on how and when to consolidate medical debt below.
Medical debt often comes unexpectedly. From emergencies, surprise out-of-network charges, a serious illness or high deductibles. Unlike typical loans, it's not something most people willingly sign up for. If a family cannot quality for charity assistance, free health care, or Medicaid, a plan to consolidate medical debt may be a great option to help them stay afloat and get back on track with their finances. It is also a good option for patients that are faced with a higher interest rate.
Effective paths to consolidate medical debt
1. Negotiate directly with your provider or seek financial help: Start by contacting your healthcare provider, whether a hospital, doctor office or the place that gave the care. Many offer discounts, interest-free payment plans, or charity care - especially nonprofit hospitals which are often legally required to offer financial assistance to those within 200–400% of the federal poverty line. Surveys show that about 60% of people with medical debt negotiated, and 65% received the relief they requested
2. Use a Medical Billing Advocate: These professionals review your bills for errors. As most medical statements contain mistakes. While they may charge a fee (only if they are successful) or take a percentage of your savings, they can deliver significant reductions for confusing or inflated bills. Medical billing advocates may be able to offer a wide rage of services beyond debt consolidation help.
3: Consider loans to consolidate medical debt - but with caution: Debt consolidation loans, whether from personal or home equity lines or a credit card, may simplify payments by combining debts into one monthly billing cycle. Or they may reduce your total interest rate. However, be cautious as converting non-interest medical bills into loan debt, even using a credit card focused on medical bills, may increase total cost due to added interest
- Some reputable options to get a loan to consolidate medical costs include BHG Financial, LightStream, PenFed, SoFi, and others. Always compare terms - rates, fees, repayment plans across multiple lenders. If the lender decides to proceed, they will provide you with a loan that can be used to pay off your existing bills at each health care provider. The key is to ensure that the new loan has a lower interest rate than your existing debts. This tends to be a feasible option for people that do not owe too much money, and that may have better credit scores.
- The most common option is to use an unsecured personal loan. This involves a bank or other lender reviewing your financial situation, including employment status, how timely you have paid bills in the past, your credit rating, and more. Read more on unsecured loans - what they are. Even if you can provide collateral for a secured loan, many experts advise clients to still consolidate medical debt with unsecured loans because it reduces your risk in the event that payments cannot be made.
4. Look Into Debt Management Programs (DMPs) - including free options: Nonprofit credit counseling agencies can help you by setting up a Debt Management Program or plan. This is a structured plan that combines all debts (including medical, if bundled with credit cards etc.) into one manageable payment. These often include reduced interest rates and educational budgeting support
5. Explore private company medical debt consolidation programs: This involves you working with a third party, such as a debt settlement company, credit counselor that is fee based, or other professional. You can give them your approval so they can contact each of your doctors, hospitals, and other health care providers to negotiate a reduced interest rate or a better payment plan. Some programs may be able to reduce your medical debt by up to 50%.
- There are a few things to be aware of. Depending on the company you use, this type of medical debt consolidation could negatively impact your credit scores. If your outstanding debt is later reported to credit bureaus as settled and not paid in full then your FICO ratings could be reduced. For those consumers that decide to take this path, you need to make sure that your debts are recorded as paid in full. Read more on medical and hospital debt settlement.
Why use a professional to consolidate?
The bottom line is that using a company to assist you, whether non-profit or not, with consolidating medical debts and dealing with health care expenses will almost always be more successful than trying to do it on your own. Doctor’s, collectors and hospital billing departments will treat a regular consumer and a professional differently. They know a professional has more information on past practices, more knowledge of consumer rights and the law, and data on how much specific health care expenses should cost.
- A hospital billing department is also much less likely to try to “bully” a professional than a unprepared, stressed out individual. If you use a professional for help with your existing medical bills and debts, you have a much better chance to settle for either a lower amount on your debts, or a cheaper payment plan.
- Other reasons to use a third party company include negotiating requires skills and experience. While they can be developed over time, many people do not have the luxury of time. It is very stressful in taking constant phone calls from doctors, hospitals, billing departments, and debt collectors. Not to mention how much personal time that takes up. Professionals can take over all these responsibilities and much more.
Your best path forward
- Act early before unpaid medical debt goes to collections. This will also you to preserve credit and secure the best options.
- Start with negotiation and assistance programs that a provider may offer (such as charity care), especially if you're low-income or uninsured.
- Compare loans and consolidation options carefully. Be sure to factor in interest, fees, and how they affect credit.
- Seek help when needed whether from nonprofit counselors or advocates as they can guide you through the process.
- Stay informed on policy changes like any CFPB rule that could eliminate medical debt from credit reporting.
For struggling families, there are a number of methods to consolidate medical debt. Not all are equally attractive, and it is important to consider all aspects of the situation before committing to a plan for repayment. There are multiple options to consider when dealing with medical expenses, however consolidation is an excellent option for certain situations. It can go a long way towards helping people save money on their monthly payments and allow them to pay off their debts in less time.
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