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Medical debt consolidation: What it is and how to do it

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Jose Luis Pelaez/Getty Images

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Medical debt is a significant burden for many U.S. households. Total medical debt in the U.S. is around $195 billion, and approximately six percent of adults in the U.S. owe over $1,000 in medical debt. Many are struggling to pay off these debts, with 34 percent of Americans increasing their credit card debt to pay off medical bills, and 70 percent having to cut costs on food, clothing and household items.

Some of the most common medical expenses that people incur include doctor visits, diagnostic tests, emergency room visits and short-term single hospital stays.

An unexpected surgery, illness or accident can derail a household’s finances, especially if you don’t have insurance or it doesn’t pick up a big chunk of the bill. If you have a large amount of medical debt and simply cutting back on spending isn’t helping you pay it off, there are options that can provide you with medical debt relief.

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Medical debt statistics
  • Over 90% of adults in the U.S. have some form of health insurance.
  • The average hospital stay in the U.S. costs $5,220 per day.
  • The average age of people who go through medical bankruptcy is 45.
  • Americans spend $1.14 trillion per year on hospital expenditures.
  • 33% of U.S. health spending goes toward hospital care.
  • The percentage of U.S. adults who carry medical debt dropped to 16.8% in April 2021.
  • Anywhere from 5.3 million to 14.2 million people could be unenrolled from Medicaid after the COVID public health crisis ends.

Can you consolidate medical debt?

You can consolidate medical debt, but the better question is whether you should.

Can you rework your budget?

First, ask yourself if you can manage multiple payments to doctors, hospitals and testing centers without consolidating your debt into a single payment. Because the reason for the medical visit can often be unexpected — such as an unexpected health issue or trip to the emergency room — many people are unprepared for the bills that follow.

Before you assume you can’t manage the debt, evaluate your expenses and ability to pay. Are the payments doable if you rework your budget? If so, it may not make sense to consolidate your medical debt.

Can you afford the interest rates?

Consolidating medical bills involves taking out a loan, which may mean you’ll be charged interest. In contrast, medical debt, no matter how long it sits, will never accrue interest. So, even though your monthly payment may be less if you consolidate your medical bills into a single loan, you’re likely to pay more in the long run once you factor in interest payments.

Can you use an alternate approach?

If you really can’t afford to pay your medical bills, don’t assume debt consolidation is your only option. If you can find a way to pay your medical debt without damaging your credit, paying more in interest or putting additional strain on your finances, it should be considered.

If you can’t find a path to medical debt relief and you have other types of debt pressing you, medical debt consolidation could be the best approach.

How do you consolidate medical debt?

Debt consolidation for medical bills involves securing a loan, paying off the medical debt and repaying the loan as quickly as possible to avoid excessive interest fees. Choose the method that will allow you to do that.

Personal debt consolidation loan

You can find debt consolidation loans regardless of your credit score; however, you’ll need a good to excellent credit score to qualify for favorable rates.

Once approved, you can use the money as desired. Pay off one large medical bill along with your credit card debt or focus solely on multiple medical bills. Look for a low interest rate and the ability to pay back the loan sooner without penalties.

One of the perks of a personal loan is that you can use it for nearly any purpose, including home renovations. If you need to make a medical modification to your home such as adding stairlifts or bathroom/shower modifications, a personal loan could help you do so.

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Key takeaway:
A personal loan for medical debt consolidation is a good option if you have a high credit score. The sooner you pay it off, the better.

Credit card

Consolidating medical debt by credit card can be risky, but it’s possible to avoid having to pay interest.

First, apply for a credit card with an introductory offer of 0 percent APR on new purchases. You might be able to find a credit card that offers 0 percent interest for up to 21 months. These credit cards typically require good to excellent credit, so you likely won’t be approved if your credit isn’t in solid shape.

Use the 0 percent balance transfer credit card to pay off one medical bill or multiple bills. Then, work on paying off the credit card as quickly as possible, and certainly by the time the introductory period ends and interest rate increases are scheduled to kick in. If you can’t guarantee you can pay off the card in time, consider other consolidation options.

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Key takeaway:
This is a high-risk option requiring quick payoff turnaround time with good credit. It is a good option if bills are manageable but you need an unexpected amount of money quickly.

Debt management program

A debt management program sets you up with a credit counselor who negotiates with creditors on your behalf for better loan terms. It can take several years to prove successful, but it is another medical bill consolidation option.

An agency will work on your behalf to negotiate a voluntary agreement between you and all the parties you owe money to. You’ll then make monthly payments to the agency, which will then pay off your creditors.

The benefit of this process is that you can save on finance charges and other fees. However, your debt could be sent to collections if you fail to make payments on your debt management plan.

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Key takeaway:
This is good for saving on fees if you need to make monthly payments and do not have the money upfront or can’t get a lump sum in the future.  

What do you do if your medical debt is in collections?

Medical debt only affects your credit score if it’s reported. A hospital or doctor’s office is very unlikely to report an outstanding bill. But once it’s handed over to a collection agency, it likely will be reported.

If your debt is already in collections, it’s time to enter recovery mode. Pay off the medical debt collection as quickly as possible. Don’t forget you can negotiate directly with the collection agency to try and lower your total amount due.

Unfortunately, medical debt can remain on your credit report for up to seven years. While you’re waiting for it to be removed, do your best to raise your score by improving your debt-to-available-credit ratio and avoiding late payments on other accounts.

If you want to try to consolidate your medical debt, it may be a good idea to consider a debt consolidation loan for bad credit.

Alternative medical debt relief options

If you want to avoid medical debt consolidation, there are alternative medical debt relief options to consider. See if any of the following options meet your financial needs.

Negotiation

As long as your debt hasn’t been turned over to collections, you can negotiate your medical bills directly with your medical provider’s office or institution. You can take two approaches to this.

If you don’t have insurance, ask if they can lower the overall bill. Discounts are often given to insurance companies, so don’t be afraid to ask for the same courtesy.

If insurance has already paid for a portion of your bill, try negotiating your payments. Let the billing office know an amount that you can afford and see if they’ll agree to it. Chances are, they’ll work with you to make sure they receive your payment in full, even if it takes longer than originally anticipated.

Pro tips for negotiating your medical debt

  • Try negotiating your treatment ahead of time by talking to the hospital billing department if you can plan ahead. Find an estimate of what the treatment costs beforehand and estimate how much you will owe depending on insurance.
  • Shop around to find cheaper providers before your treatment.
  • Request an itemized bill after treatment and check for errors.
  • Enroll in a payment plan with the medical institution performing your treatment.
  • Offer to pay for the service upfront in exchange for a discount.
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Key takeaway:
There is always room for negotiation. However, there is no guarantee expenses will be lowered. 

Medicaid

Based on your income and household size, you may qualify for Medicaid, a free or low-cost health coverage program for low-income individuals and families. Eligibility is determined at the state level. After providing proof of income and an itemized list of monthly expenses, your medical bills could be covered in full if you’re approved.

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Key takeaway:
This is a great opportunity if you meet the financial qualifications. 

In-house financing

Some medical providers offer in-house financing, even to patients with poor credit. A third party foots the bill for your treatment and places you on a structured medical bill payment plan. You will have to pay interest, so don’t choose this option if you can pay for your bill using an interest-free method.

If you’re unable to qualify for a credit card or personal loan and cannot pay the medical bills otherwise, in-house financing will keep you out of collections. In-house financing is available for both individuals with and without medical insurance.

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Key takeaway:
This is a good option for people with both good and bad credit who can afford to pay monthly payments over time.   

Ask for help

If you can ask family and friends for help, you could pay off your medical bills without having to go into debt. It is not uncommon for people to receive help this way. In fact, 37% of individuals who struggle with medical debt have borrowed money from family or friends to cover the cost. Consider funding options like GoFundMe, where a third of the site’s donations are for medical expenses.

If you’re not comfortable asking for charity, you can always pay back those who donated as your finances allow, without having to worry about interest or dings to your credit report.

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Key takeaway:
This is the best way to avoid paying interest and can often result in lower payments for you or payments you can make on your own time.  

Bankruptcy

Bankruptcy certainly isn’t the recommended first option for medical debt relief. But if you feel like you’ve exhausted all your other options, you’re not alone. A recent study from academic researchers found that an estimated 530,000 American families turn to bankruptcy each year because of medical debt.

Just make sure you understand the facts about bankruptcy before committing to the process.

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Key takeaway:
Bankruptcy should be used as a lost resort – be sure to evaluate your situation thoroughly before deciding.    

The bottom line

If you’re wondering how to get out of medical debt, there are several options to consider. But if it makes financial sense, debt consolidation can help you find medical debt relief quickly and without causing too much damage to your credit score.

Before deciding on debt consolidation, make sure that you understand your personal financial situation and have explored all of the options available to you. There are pros and cons to all of the outlined options, so make sure you have done your research before deciding.

Written by
Raija Haughn
Raija Haughn is an associate writer for Bankrate.com specializing in personal and home equity loans. She is passionate about helping people make financial decisions that will benefit them long term.
Edited by
Loans Editor, Former Insurance Editor