If healthcare bills are piling up and your finances are strained, you’ll want to explore every avenue you can to take back control of your budget.
Refinancing and consolidation are popular remedies for other types of debt, such as high interest credit card debt. You simply take out a new loan with better terms and use it to pay off your old balances.
But these common solutions can do more harm than good when it comes to health care bills. Medical debt is special – and the good news is, it gives you a lot more options.
Before you act, know that medical debt is different
Since hospital bills are often unexpected and severe, medical debts are very common. Nearly one in five Americans are sued by debt collectors for unpaid medical bills, with a combined total of $ 140 billion.
It sounds bad – and it is – but medical debt differs from other types in three important ways.
First, it is usually interest free or has a very low interest rate.
Second, if you stop paying and your debt is collected (often about three months late), it won’t ruin your credit right away. Major credit bureaus give you a 180-day grace period before listing past due debt on your credit reports, giving you more time to pay it off.
Finally, some credit scoring models treat medical debt less harshly than others, so it might not cause as much damage. And if you can convince your insurer to reimburse the collection agency, the credit bureaus can remove the black mark from your credit reports sooner.
So what’s the deal with refinancing?
On the surface, medical debt consolidation works the same way as credit card debt consolidation – you replace all your problematic balances with a new loan that is better for you.
This will leave you with a single payment to manage. You won’t need to keep track of many invoices with varying amounts and due dates.
It sounds pretty convenient, but unless you’re already paying interest on your medical bills, you’ll increase costs by switching to a personal loan, line of credit, or credit card.
Even if your credit score is in good shape and you can get an interest-free promotion on a credit card, you won’t have much time before the problem gets worse.
Not only that, you will lose all the special protections attached to medical debt once you turn it into conventional debt.
Another potential reason to refinance would be to extend your debt over a longer period of time. This could lower your monthly payments and help you avoid defaults. But you might be able to get the same result if you just ask your creditor for help.
Other Ways to Manage Your Medical Debt
Instead of replacing your debt, see if you can reduce your burden with any of the following options:
Talk to your financial aid providers
Try to negotiate a payment plan with your creditor, whether it’s a hospital, doctor, lab, or some combination. Ask if you can break the bill down into more manageable payments over a longer period of time.
The Affordable Care Act (ACA) actually requires some nonprofit hospitals to provide financial assistance to low-income patients.
Although the ACA does not specify the exact terms of this aid, the nonprofit Patient Advocate Foundation says the discounts range from 10% to 100% amortization.
“Don’t assume that income or assets (like home ownership) exclude you from eligibility for financial assistance,” he adds in a report. “A person who earns $ 100,000 a year but has $ 25,000 in medical expenses could be eligible for assistance even though it does not initially appear that they would qualify. “
You can also find out if your state has its own medical debtor protection laws. According to the National Consumer Law Center, about half of the states specify eligibility based on income and specify the type of assistance a hospital must offer.
Look closely at your medical bills
Just as credit reports often contain errors that hurt your credit score, billing errors could make your debt worse.
For example, you may have been billed higher rates than allowed by your insurer, or you may have charged unauthorized charges under your coverage.
If you find any errors or unauthorized charges, contact your health care provider and insurance company for resolution.
Call for some support
If you’re feeling overwhelmed, enrolling in a debt management program may be a better way to consolidate your bills.
To do this, use a reputable credit counselor to help you manage your bills and create a payment arrangement between you and your creditors. American Consumer Credit Counseling and the National Foundation for Credit Counseling are two nonprofit companies that provide this service, although not all of their services are free.
A similar option is to hire a medical billing lawyer. Some people do this if they are trying to manage a chronic medical situation or if they are having difficulty getting their treatment paid for by their insurance company.
These professionals promise to negotiate for you, help reduce charges on your bills, and make sure you don’t pay more than you should. Some charge by the hour or take a percentage of the money you’ve saved with their help.
Since this type of career is relatively new, you need to make sure that you hire a reputable lawyer. Two places you can go to learn more are the Alliance of Professional Health Advocates and the National Association of Healthcare Advocacy.
How to free up money and avoid more debt
Once your medical debt is in the most manageable form possible, you will still need to find the money within your budget to make your monthly payments. And sometimes refinancing can to help.
If you own your home, your first course of action should be to find out how much you could save by refinancing your mortgage. Some 13.9 million mortgage holders could save an average of $ 293 per month with a refi, according to mortgage technology and data provider Black Knight.
Keep in mind that the best interest rates go to borrowers with the highest credit scores. If your bills have lowered your score, use a free credit monitoring service to assess the damage and get advice on the fastest way to improve it.
Next, take a look at your insurance policies; studies show that you could be paying thousands of dollars in excess per year. Start by using a quote comparison site to check for a better rate on your home insurance, then use the same strategy to save on your auto insurance.
Finally, to avoid unbearable medical bills in the future, try not to go without health insurance for a while – and shop around to determine if you have the best health insurance you can afford.
National open enrollment periods begin in November for many insurance plans, and the federal government recently extended open enrollment for market plans by 30 days. Many states have also extended their open registration dates.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.