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Updated on Tuesday, March 6, 2018
More than a quarter of U.S. adults — with and without health insurance — have trouble paying medical bills, according to the Kaiser Family Foundation and The New York Times. Medical bills can lead to a cascade of financial difficulties — collections calls, damaged credit or even bankruptcy.
For consumers who have bad credit, the problem of high bills is compounded by difficulty accessing affordable financing that could help pay them off.
In this guide, we’ll tell you everything you need to know about tackling debt, no matter what shape your credit is in.
Paying medical bills with bad credit
If your credit isn’t great, that doesn’t necessarily hinder your ability to pay your medical expenses. True, it can definitely make it difficult — or, at the very least expensive — to qualify for types of financing that could help put a dent in your bills.
But don’t let it get in the way of taking action. After all, the worst thing you can do is ignore those bills. When bills are left unpaid, medical providers may send them to collections and seriously delinquent debts can make bad credit scores even worse.
To avoid further damage, take action right away to demonstrate that you’re serious about handling the bills responsibly.
Contact the billing office of the medical provider and ask if they offer a repayment plan. This will also help lower the chances of the bill being sent to collections because you’re demonstrating that you’re willing to pay, even if you can’t pay it in full right away.
“At most facilities, after they send you three bills, they may send you to collections,” said Missy Conley, director of consumer claims at Medliminal, a medical billing advocacy group in Roanoke, Va.
Requesting information from providers and arranging payment from insurers can be time-consuming but it’s worth the effort if you can avoid further collections.
Once a medical bill goes to collections, the agency can report it to credit reporting agencies. Then you’ll have six months to resolve it before it goes on your credit report. The 180-day grace period is a recent development, from a September 2017 regulation.
Follow these steps to keep medical debt from dragging down your credit.
Check your bill for errors
Errors are rampant in medical billing. Request an itemized bill and examine it closely. The bill you receive might only be a summary of charges.
If something doesn’t look right, tell the provider you think there has been an error. “For years we have been finding that 80% to 90% of the client bills we analyze have errors,” said Tina Pashley, Medliminal spokesperson. “But in 2017, out of around 2,000 client bills, literally 99% had errors.”
Stay calm and collected. “People see a gigantic bill and immediately get very upset,” added Bonnie Sheeren, a medical billing advocate with Houston Health Advocacy. Billing services are often outsourced to third-party agencies whose employees may not fully understand the issues you’re describing. “The billing people may not be that well-trained or well-educated,” Sheeren warned. Keep calm, and ask to speak with a supervisor if you feel your complaint isn’t being understood.
Double-check your insurance
Look for an “explanation of benefits” or EOB from your health insurance company and check it against your itemized bill. Look for duplicate charges, services you didn’t receive or anything that looks wrong.
“The No. 1 issue I dealt with last year was well visits wrongly coded as diagnostics — including a lot of colonoscopies and pap smears,” said Conley. Most well visits are covered 100% as preventative treatment these days. When they are coded as diagnostic treatments instead, your insurance provider may charge you the full price.
The out-of-pocket difference could be thousands of dollars, since a colonoscopy that is a preventative screening would typically be fully covered, while diagnostic procedures are subject to a deductible before being partially covered.
Human error can be to blame. After surgery, one of Sheeren’s clients received a large bill from the anesthesiologist, even when the surgeon’s bill was paid in full by the insurance company. The culprit turned out to be a single wrong digit on the insurance claim, easily solved by sending a scan of the patient’s health insurance card.
Apply for financial assistance
When you get your bill, apply for financial assistance — sometimes known as charity care — right away. Some hospitals list details of their financial assistance programs on their websites. There may be a sliding scale for discounts based on your income.
For example, a hospital might waive fees altogether for patients who have a household income below 200% of federal poverty guidelines, or give a 25% discount for households with income levels up to 400% below the guidelines.
“Some programs take into account your mortgage payment, monthly bills, even your groceries,” said Conley.
It’s worth trying to negotiate, especially if you have a large bill. Here are some ways to approach your doctor or hospital about cutting a deal.
Ask for a self-pay discount
If you’re without insurance or have a high-deductible plan, tell the billing office that you’re paying for your own health care and ask if they’ll work with you. Conley has seen discounts ranging from 5% to 65%. ”One guy got a 65% discount on his emergency room bill because he was uninsured,” she said.
Compare costs before bargaining
Look up the costs of procedures at facilities in your area to use as a reference point in your negotiations with the provider. For example, prices for a knee arthroscopy range widely, from $3,717 to over $11,617, according to Healthcare Bluebook. A fair price — based on the actual amounts health plans pay for the same procedure — is $4,647, the site suggests.
Use one provider’s financial aid to leverage another
If you have bills from multiple providers and one offers financial aid, try using that information to get similar concessions from the others. Sheeren had a low-income client with poor credit who was billed a total of $40,000 for services from the hospital, ambulance, hospitalist, radiologist and neurologist.
The client applied at the hospital for financial aid and received a letter detailing a generous write-off of the entire hospital bill, $35,000. Sheeren showed the letter to the remaining creditors and was able to secure substantial discounts. “They were willing to accept the fact that the hospital had vetted him,” she said.
Offer a lump sum as a bargaining chip
If you’re offered a discount, keep pressing for a better deal. “Often you can get them to go lower on a big bill if you pay immediately,” said Sheeren.
In one case, Sheeren was negotiating with a private air ambulance service that had billed her client $50,000 for transport to a medical center. She’d gotten them down to $12,000. “I said, ‘Oh, I think he’s only got $10,000 in savings’ and they agreed.”
Do your homework before getting treatment
When possible, if you’re having elective surgery or nonemergency treatment, do some research ahead of time to minimize your costs. Costs for medical procedures vary widely. Not only that, but if you’re mistakenly seen by a doctor that isn’t covered by your insurance, your costs can be astronomically higher.
Confirm that you’ll be treated by doctors and hospitals that are in your insurance network, if any. Check your health insurer’s website for typical prices of office visits, lab work, X-rays, scans and surgical procedures.
MRIs and CT scans have some of the biggest price ranges, according to Healthcare Bluebook. For example, a chest MRI in ranges in price from $876 to over $2,740. If you go to an imaging center inside a hospital, you could pay three to five times more than you would at a freestanding scanning facility, according to the site.
Shop around for prescription drugs, too. Cholesterol drug Lipitor ranges in price between $128 and $8 for 30 tablets, according to the prescription drug website GoodRx.
Other financing options when you can’t afford your medical expenses
After negotiating the bill down as far as you can, avoid putting the amount on a credit card with a high interest rate. Instead, ask whether the provider offers a no-interest payment plan that breaks the bill into affordable monthly payments.
Don’t accept a payment plan that you can’t afford or you’ll soon be back to square one and the bill may end up in collections. Instead, ask for a longer repayment period with a reduced monthly payment. “Usually with big bills, they’ll say 12 months,” said Sheeren. “I’ll ask very nicely, saying my client has so many bills, and they’ll often stretch it to 18 months.”
Medical billing advocates
You can hire a professional to fight your bills if you’ve tried the DIY route without success or if you’re not feeling well enough to take on the job. They can do the heavy lifting of contacting billing offices and insurance companies, poring over detailed bills and negotiating discounts.
Search for a medical billing advocate in your area through the National Association of Healthcare Advocacy Consultants or the Alliance of Claims Assistance Professionals. Many take a percentage of the savings they find, often 20% to 35%, while others charge hourly rates ranging from $30 to $125 per hour.
Some employers offer medical billing advocates as a benefit. Check with your HR department to see whether this is available.
It’s become popular to raise funds for high medical bills, alternative treatments, physical therapy or related expenses like travel costs on crowdfunding websites. Medical is the most popular area of fundraising on GoFundMe, according to the company’s website. Often, family members or friends launch campaigns on behalf of the patient. Sites like Plumfund and Youcaring do medical fundraising only.
There is no guarantee that a crowdfunding campaign will achieve its goal. Patients may feel their privacy is compromised if they are compelled to share details of their condition, prognosis and or financial situation at a stressful time, in an effort to “go viral.” Starting a fundraising campaign on GoFundMe is free but there is a fee of 2.9% of the amount, plus 30 cents per donation, for payment processing.
When you’ve tried the steps above and still face an unaffordable bill, it’s time to research financing options that are available when you have bad credit. Here’s a look at the pros and cons of some options for financing your medical expenses.
Medical credit cards
Medical credit cards, like CareCredit, offer instant approval at the doctor’s office so you can finance your bill with a 0% promotional APR over a period of typically six to 24 months.
But there’s a big catch. If you don’t pay off the balance by the end of the 0% interest promotional period, you’ll be hit with a deferred rate of 26.99%. That’s charged on the original amount, not the current balance — retroactive to the day you put the amount on the credit card.
Don’t use a medical credit card unless you can pay it off before deferred interest kicks in.
You might be considering whether to pay for medical expenses through a loan from your 401(k) plan. Generally, if your plan allows loans, you may borrow up to 50% of your account balance, up to $50,000, for a maximum of five years.
However, the risk you take is that the money you borrow from your plan will miss out on market gains. The IRS warns that borrowing from your plan may lower your investment earnings and reduce the amount of money you have available for retirement.
Also, if you quit or lose your job, 401(k) loans typically must be paid back in full, or they’ll be treated as a distribution. If that happens, you may have to pay income tax, and if you are under age 59½, a 10% penalty.
Use 401(k) loans only as a last resort, and explore other options for your medical debt.
Refinancing your mortgage
If you own a home, a home equity loan or home equity line of credit may be an option. Lenders will typically lend an amount equal to a set percentage, usually 80% or 90%, of the home’s appraised value, minus the amount owed on the mortgage. Because you’ve pledged your home as collateral, interest rates are significantly lower than credit card rates.
You could also opt for a cash-out refinance loan, which is when you refinance more than your current loan balance and use the leftover funds for whatever purpose you choose.
However, if you’re unable to repay the loan, you risk losing your house. Also, such loans may carry high fees, including property appraisal fees, application fees, upfront charges and closing costs, all of which could total several hundred dollars.
Personal loans for medical debt consolidation
Even with less than perfect credit, you may be able to qualify for an affordable personal loan to pay off or refinance medical debt. You can apply for a loan at credit unions, traditional banks or online personal loans lenders.
Credit unions are not-for-profit organizations that exist to serve their members, who are also their customers. You can join a credit union based on where you live, work or other criteria. A neighborhood credit union may be willing to work with you in understanding the reasons behind your damaged credit and your individual financial situation. The interest rate on loans from federal credit unions is capped at 18%.
Some personal loan lenders cater to consumers with average or bad credit. You can shop around for an online loan through a site like LendingTree, where you can complete one online form to potentially get quotes from multiple lenders or you can view our list of debt consolidation loans. This can be a convenient way to quickly compare loan offers and interest rates from multiple lenders. (Note: LendingTree is the parent company of MagnifyMoney.)
Expensive loan options to avoid
Be careful not to make your financial situation worse by taking out expensive or predatory loans. In particular, watch out for these expensive loans.
Avoid payday loans
Many TV and radio ads tout no-credit check loans as a quick solution, but a $100 payday loan quickly gets expensive when you add in a $15 fee and interest rates as high as 400%, according to Pew Charitable Trusts. The Federal Trade Commision warns consumers against such short-term payday loans, also called cash-advance loans, check-advance loans, postdated check loans or deferred deposit loans.
Borrowers often become trapped in a cycle of recurring debt, with over 80% of payday loans rolled over to another loan, according to a 2014 CFPB study.
Avoid loans requiring collateral
If you have bad credit, you may be considering a secured loan that requires collateral such as a car title or savings account or certificate of deposit. Auto title loans, for example, don’t require a credit check but lenders may charge an average of 25% per month in interest — that works out to an annual percentage rate of at least 300%. However, if you’re unable to make the payments, you will lose your car or your savings. A less risky approach is to work out a no-interest payment plan with your health care provider to make affordable payments on the debt over time.
Beware medical financing scams
The FTC warns consumers about scams involving “medical discount plans.” Such plans charge a monthly fee is exchange for discounted health services, sometimes advertised as “up to 70% off.” These may appear to be a cheap alternative to health insurance, but some are nothing more than schemes to gather personal information and steal your identity.
If a plan sounds too good to be true, don’t pay money or provide your financial information without checking with your state insurance department for reports of scams involving the company.
Learn More: What does it mean to have ‘bad credit’ anyway?
Credit reports contain personal and financial data from public records, lenders, credit card companies and other creditors.
Credit reporting agencies track information like the number of accounts you have, credit limits, balances and payment history. Unpaid medical bills can also land on your credit report. Nearly one out of five credit reports contain past-due medical bills, according to a 2014 Consumer Financial Protection Bureau study.
Lenders use these reports when deciding whether to approve a loan, mortgage or credit card. Employers and landlords may also look at credit reports.
Credit scores are on a scale of 300 to 850. A credit score of 580 to 669 is considered fair, or “subprime,” according to Experian. About 20% of people have fair credit scores.
A score of 300 to 579 is considered poor. About 17% of people have poor credit. People with fair or poor credit scores may not be able to qualify for loans or credit cards, or may have to pay higher interest rates.
To improve a bad credit score, the best approaches are paying all bills on time and keeping credit card balances low. These two factors account for 70% of your credit score, according to Experian. Late or missed payments, including rent, utility bills and phone bills, can stay on your credit report for seven years, but their impact on your score lessens over time.
Aim to keep your credit utilization ratio — your total credit card balances divided by your total available credit — below 30%. Doing so signals to creditors that you’re in control of your credit responsibilities.