Can I Get a Loan to Pay Off Medical Debt?

Gynecologist talking with young female patient during medical consultation in modern clinic

Do you lie awake at night worrying about a massive medical bill? Plenty of your neighbors are probably tossing and turning too. More than one-fourth (26%) of U.S. adults say they or a member of their household have had problems paying medical bills in the past year, according to the Kaiser Family Foundation. Using a loan to pay off your bill might look like the fastest way out of medical debt. But while you can get a loan to pay off medical debt, it's usually not the best idea. Keep reading to find out how medical debt affects your credit, the downside of using a loan to pay off medical debt, and other options for paying your medical bills.

How Medical Debt Affects Your Credit

Normally, medical debt and the payments you make on that debt aren't included on your credit report the way your credit card, car loan or mortgage payments are. Even if the medical provider's internal collection department starts calling you, the debt still won't show up on your credit report. Where you can get into trouble is if the medical provider sells your debt to a third-party collection agency.

If you don't pay your medical debt and it ends up being sent to a collection agency, you have a 365-day grace period before the unpaid medical collection account shows up on your credit report. The grace period gives you a chance to contact the doctor or hospital and create a plan for paying off the debt. Paid medical collections accounts aren't included in your credit reports at all, and neither are medical collections accounts for debt less than $500.

Is It a Good Idea to Pay Off Medical Bills With a Loan?

When you're worried about a hefty medical bill, getting a personal loan, home equity line of credit or second mortgage to wipe out the debt may seem like the perfect solution. However, paying off debt by taking on more debt is rarely a good idea. Once you add up the interest and fees that lenders charge, using a loan to pay off medical debt will cost you more in the long run.

When looking for other ways to deal with medical debt, keep the following in mind:

  • Don't ignore the debt and let it go to collections: If you don't pay the medical bill when it's due, you'll receive a notice from the provider that your bill is overdue. The provider will continue to warn you that your bill is overdue and in danger of becoming delinquent. If you still don't respond to the notices or pay the bills, the provider will either have their internal collection department contact you or sell the debt to a third-party collection agency that will begin contacting you.

    Don't stick your head in the sand and ignore a medical bill hoping it will go away. Once an account above a certain amount goes to collections, it has an extremely negative effect on your credit score. The FICO credit scoring formula weighs unpaid medical collection accounts less heavily than other types of collection accounts. And VantageScore® doesn't consider unpaid medical debt at all when calculating a score. Still, an unpaid medical collection account that's been delinquent for more than a year will remain on your credit history for seven years unless you pay it off.

  • Don't put the debt on an existing credit card: Using a credit card to pay off medical debt is likely to dig you even deeper into a financial hole than using a loan. That's because credit cards generally have much higher interest rates than personal or home loans. Unless you can afford to pay off the entire credit card balance in a month or two by tapping into savings or borrowing from a family member, this can be a very costly way to reduce your medical debt. Plus, credit card debt appears on your credit report immediately, and if you have trouble paying off the credit card balance, your credit score could suffer.

Are There Other Loan Options to Pay for Medical Bills?

If you don't have health insurance, you're likely to pay more in medical bills because you're responsible for the full cost of your care. Whether you have insurance or not, there are two other options for managing medical bills.

Payment Plan

Most medical providers are happy to work out a payment plan with you if you can't pay your medical bill in full. (Like any business, medical providers would rather get paid over an extended period than not get paid at all.) Payment plans break your total medical debt into monthly installments, similar to a car payment.

The best time to discuss payment plans with your medical provider is before you have a procedure done, but you can also contact your provider after receiving your bill to talk about payment plan options. Before agreeing to a payment plan, be sure to ask about any interest, fees or additional costs so you know exactly how much you'll pay.

Some providers offer income-driven hardship plans. This is a special type of payment plan for low-income patients. Income-driven hardship plans forgive part of your medical debt and divide the remaining amount into monthly installments so the debt is manageable for your income level. Talk to your provider or medical facility to see if they offer income-driven hardship plans.

Medical Credit Cards

Medical credit cards are special cards that can be used only for medical costs and sometimes only for certain procedures. Ask your medical provider whether they accept medical credit cards and if so, which ones. You can apply for medical credit cards online or, in some cases, at your provider's office. Like medical procedures themselves, medical credit cards have some inherent risks you should know about. Many medical credit cards offer zero-interest financing for six, 12, 18 or 24 months; others offer lower interest financing on purchases over a certain amount.

Zero interest financing can help you manage your medical debt, but you must be confident you can pay the balance in full before the zero interest period ends. When the time is up, all the deferred interest retroactive to the purchase date will be added to your balance at once. CareCredit, one of the most popular medical credit cards, currently charges 26.99% interest, so getting hit with 24 months of interest on a hefty medical bill could leave you deeper in debt than when you started. As with any credit card, medical credit card payments are reported to credit bureaus. This can help to boost your credit score if you make your payments on time, but can hurt your credit score if you can't.

Ways to Pay Off Medical Debt Without a Loan

If none of the above options for paying off medical debt works for you, consider these alternatives.

  • Hire a medical bill advocate: Medical bill advocates work on your behalf to find and remove errors and overcharges on medical bills; contact medical providers and insurance companies for you; and negotiate reduced payments, payment plans or even loan forgiveness. People who have massive medical bills or are too ill to do the legwork to negotiate the health care billing system often use medical bill advocates to cut through the red tape. Medical bill advocates either charge an hourly rate or take a percentage of the money they're able to save you.
  • Negotiate costs on your own: You don't need to possess the persuasive powers of a professional salesperson to negotiate with a medical provider. Being polite, flexible and reasonable will often do the trick. Remember, providers would rather get paid something than nothing. Ask your provider's billing department if they will accept monthly payments or reduce the total you owe if you pay the reduced balance in full. According to Consumer Reports, many providers reduce fees for patients who pay directly instead of having care billed through their health insurance. If you don't have health insurance, you may be able to ask for that lower price too.
  • Medical bill forgiveness: If you have a severe issue such as a disability that leaves you unable to earn income and pay your medical debt, your provider may be willing to forgive some or all of your debt. While it's difficult to get your entire debt forgiven, it's worth talking to the provider to see what they can do.
  • Financial assistance or charity care programs: Under the Affordable Care Act, nonprofit hospitals are legally required to provide financial assistance for people with incomes below a certain level. Many for-profit hospitals and medical providers do the same. These financial aid programs are usually limited to essential medical services and require providing proof of income to qualify. Visit the provider's website or call their billing department to see if your provider offers financial help with medical bills. If they don't, ask if they know of any local organizations that help low-income consumers with medical bills.

To Manage Medical Debt, Be Prepared

The best way to manage medical debt is to avoid it in the first place by planning ahead. Whenever possible, talk to your medical provider and insurance company to find out what your cost will be before you undergo a procedure. If the costs are more than you can easily afford, talk to your provider about ways to pay.

Of course, you can't plan for an accident or major illness. But you can prepare for these risks by learning what your health insurance covers and choosing the medical provider that minimizes your out-of-pocket costs (such as an in-network doctor or hospital). Armed with this information, you'll be ready to make smart decisions about both your medical care and its impact on your budget.