Medical Bill Consolidation

Do not despair if medical bills make you feel ill. There are cures for the plague that is America’s medical debt epidemic.

How widespread is this issue? Americans spent $4.7 trillion on medical bills in 2023, according to the Center for Medicare and Medicaid Services.

While the number of American showing medical debt on their credit report decreased from 2021 to ’23 thanks to financial relief during the COVID years, more than 100 million Americans still had medical debt in 2023, according to the Consumer Financial Protection Bureau research.

Those burdened with medical debt may wish to seek some sort of debt relief. One way to do this is via medical debt consolidation. This could lead to a simpler solution, but before taking this step it’s wise to know the details.

Should you consolidate medical debt? Apply for a government relief program? Get a medical debt loan? File bankruptcy?

Here’s a simplified look at how to consolidate debt and get medical debt relief.

What Is Medical Bill Consolidation?

Medical bill consolidation is taking out a single loan and using it to pay off multiple medical bills. For instance, if a person has three medical debts of $3,000, $3,000 and $2,000, he or she would borrow $8,000, use that money to pay the three loans, then repay the new loan with one single payment.

Medical bill consolidation does not eliminate the debt. It merely shifts it from several creditors to one. The end result is one payment to one lender, once a month. It is a way to simplify paying off medical debt.

The best places to look for medical bill consolidation loans are banks, credit unions and online lenders. Companies in all three categories call this an unsecured personal loan because there is no collateral behind it. If you don’t make payments, there is nothing for the lender to reclaim, thus the interest rate on the loan could be higher than you anticipate.

How to Consolidate Medical Bills

Anyone who has spent time in a hospital knows here’s no such thing as a medical “bill.” There are medical “bills” – plural. Keeping track of them can be a hair-pulling experience, which is why many consumers find it easier to consolidate.

The borrower remains in debt, but repayment is simplified: There is just one creditor and one monthly payment.

Debt consolidation for medical bills can involve a personal loan, home equity loan or credit card balance transfer. In addition, some debt management programs allow this step. Those are the best medical debt consolidation options.

However, there is plenty to consider before taking this step.

Unlike credit card debt or a bank loan, there usually is no interest charged to medical debt. Medical facilities also can provide more payment options, like agreeing to a certain amount per month. They may even negotiate what is owed.

It’s important to keep in mind that consolidating medical debt and taking on a loan to deal with it adds interest to monthly payments, so the long-term debt becomes more expensive. Borrowers also lose certain credit protections that apply only to medical debt.

So, it’s worth exploring alternatives to debt consolidation, and we’ll go over those options.

Medical Debt Consolidation Program Benefits

One monthly debt payment, combining credit card debts with medical debts, will streamline the bill paying process and help you stay organized and save money. Think of it simplifying your financial life.

Including medical debt on a debt management program may help pay it off more consistently and faster than you would on your own. Making consistent, on-time payments, as is required while on a debt management program, also can improve the credit score.

In fact, if you already are in a debt management program, it’s possible you could roll the medical bills into the program. Though it might not make a difference in terms of the total amount owed, it may be more convenient than writing checks to a variety of doctors and hospitals.

Options for Medical Debt Consolidation

There are several sound options for consolidating debt of all kinds, and they apply to medical debt – which often appears without warning and at a time when it’s difficult to find a solution. Each option can be used to solve the immediate problem of new, demanding debt payments. Each option also comes with risks that should be factored into your decision-making process. Let’s take a look at the pros and cons of the different approaches.

Debt Management Program

You may be enrolled in a debt management program by a nonprofit credit counselor, or you may enroll on your own.

Pros:

• A debt management program organizes debts so that you can pay them off over a set period of time.
• Consolidating debts can mean one monthly payment to cover all obligations, which is simpler to monitor than multiple monthly payments.

Cons:

• This type of program requires discipline. You must make sure to make payments on time without falling behind.
• Debt management plans programs often require an enrollment fee and a monthly maintenance plan.

Credit Counseling

Nonprofit credit counseling can be a good first step in addressing any problems with debt, including medical debt.

Pros:

• Nonprofit credit counselors do not charge for their services.
• Accredited counselors are required to offer the best debt-relief option for your situation.
• Counselors are prepared to offer strategies for handling debts that you may not be aware of.
• Counselors can help you create a budget.
• They may offer free educational materials and workshops.
• They may be able to enroll you in a debt management program created to help repay debts at an affordable rate over a set period of time. This is important; the counselor will not lean toward a burdensome approach, but one that fits the situation and helps ease the concerns.

Cons:

• For-profit companies may advertise as debt management counselors, and you can find yourself paying for their services. You can protect yourself by finding an accredited nonprofit counselor at InCharge Debt Solutions or on the U.S. Department of Justice website.

Personal Loan

It may not seem like a good idea to incur debt to pay debt, but there are good arguments for taking out a personal loan to pay medical bills.

Pros:

• A personal loan is paid back in regular monthly installments.
• A personal loan is an unsecured debt, so no collateral is required.
• Anyone interested should shop for the lowest interest rate available, which will be determined partly by your debt-to-income ratio and credit score. If approved, the interest rate and payments are fixed for the life of the loan.

Cons:

• Interest rates can be high, and borrowers will pay them for the life of the loan. That adds to the total amount paid for the medical debt.
• Fees may be charged for the loan, and that cost can be as much as 3%-8% for an origination fee. Again, these fees add to the total amount paid.

0% APR Balance Transfer Credit Card

This step involves taking advantage of special offers from credit card companies. If an introductory interest rate of 0% is offered, it may make sense to sign up for that credit card, then pay off all debts with the credit card.

Yes, it sounds crazy, but handled properly it can help. Especially if a medical bill has been sent to collections.

Pros:

• By using the card to pay medical bills, the borrower resolves the more dire situation with a hospital or bill collector by transferring the debt to a more manageable situation.
• If you can pay off the credit card during the introductory period, you can settle your debts without paying interest.

Cons:

• There likely will be a balance transfer fee. That could be 3%-5% of the total amount transferred.
• If you’re unable to pay off the card by the end of the introductory period, you will see the interest rate kick in at upwards of 25% annually. That would make the original debt much more difficult to pay.

Home Equity Loan

A home equity loan uses the equity in your home to borrow money. The home becomes the collateral in this loan or in a home equity line of credit (HELOC). Home equity loans and HELOCs are tethered to the equity in the home. A line of credit gives access to a set amount of money that a person can then use to pay debts.

Pros:

• A home equity loan or HELOC allows a borrower to set up lower payments over more time rather than have the larger debt fall into the hands of collection agents.
• Payments are fixed for a home equity loan, so you’ll make the same monthly payments over the life of the loan. HELOCs typically are variable, meaning interest rates can go up or down.
• Secured loans can be obtained for lower APRs than unsecured personal loans.

Cons:

• Because the home is being used as collateral, if you do not keep up with payments, you risk losing the home. For this reason it’s imperative to handle the loan responsibly and make on-time payments.
• Fees to apply for and receive a loan could mean paying 2%-5% of the amount of the loan.
• Interest will be paid. This should be considered, because negotiating with medical providers can result in a payment plan with no interest.

401(k) Loans

Some retirement savings plans – 401(k) accounts – allow you to borrow from your savings. If medical debt is a pressing problem, this solution has benefits.

Pros:

• It is your money. There is no approval process or credit checks, although taking this step means you are obligated to pay the amount of the loan within five years.
• By borrowing from “yourself,” you repay yourself. Repayments go back into the 401(k) account, which will continue to grow.
• The APR is low, often as low as the prime rate plus 1%. Any interest paid goes back into the 401(k) account, not to a bank.

Cons:

• Those who can’t repay the loan must pay income tax on the amount borrowed, plus a 10% early withdrawal fee if you are younger than 59½.
• You lose out on interest earnings on the amount borrowed. Even once the principal sum is repaid, those lost earnings are gone for good.
• There are fees and closing costs associated with a 401(k) loan.
• Leaving your job before the loan is repaid means repaying the entire remaining loan or facing an IRS tax penalty. The payoff must happen before the due date of the next federal tax return (i.e. if money is borrowed from a 401(k) in 2024 and the borrower takes a new job in December ’24, the loan must be repaid by April 15, 2025).

How to Choose the Right Medical Debt Consolidation Plan

Finding the right plan takes careful study and assessment. It also should be a step taken after an attempt is made to negotiate the debt with the medical provider (more on that to come).

Factors that influence which plan is best for each situation are total debt owed, the personal financial situation, and future goals.

Debt consolidation can be helpful to those who have several debts because it results in one loan and one payment.

Before making any decision, sit down and assess your budget, financial position and whether taking out a loan that adds interest to the debt is financially sound.

The debt situation alone is overwhelming, so it’s wise to be careful about future debt. This is where a nonprofit credit counselor can help. He or she can navigate through the situation to find the proper solution.

Steps to Take Before Consolidating Medical Debt

Any first step in consolidation medical debt means sitting down and listing all medical debts to see the total amount owed. The next step is calling the provider(s) to see if a lower figure can be negotiated.

While this may sound like a longshot, medical facilities and businesses will work with those who owe money. They’d rather come to an agreement with the patient than send them to collections or risk receiving nothing for the amount billed.

Many facilities have an office with advocates who can help in these discussions. Medical bill advocates — such as California Medical Billing Advocates (for Californians) or the Patient Advocate Foundation (nationally) — are nonprofits that offer free services. Be careful and ask the cost when speaking to anyone who calls themselves an advocate. Some agencies may charge $100 or take a portion of what they save you to negotiate on your behalf.

Other steps to take include assessing your budget to be sure the monthly payment for a consolidated loan is affordable. It’s also logical to carefully assess the costs of any loan – fees, interest rate, etc. – to see if the benefits outweigh the costs. This is another instance where a nonprofit credit counselor can help walk you through the process.

How Medical Bill Consolidation Affects Your Credit

Consolidating medical bills can boost a credit score if payments are made on time and regularly. Not paying medical bills will hurt the credit score, regardless of whether those debts are consolidated or not.

Medical debt is handled differently than consumer debt. The three major credit bureaus will not add it to a consumer’s credit report until it is 365 days past due. If the debt is less than $500, it no longer appears on credit reports.

The 365-day grace period provides time for insurance companies to make payments and allows consumers to correct billing errors, negotiate a payment plan with the provider, hire a medical advocate to resolve costs and payment plans, come up with a consolidation plan and payment arrangement and determine whether the individual qualifies for financial assistance from nonprofit organizations or governmental programs.

If none of that happens during the grace period, the debt likely will be turned over to a collection agency, which will report it to the credit bureaus. Once that happens, it shows up on credit reports and stays there for seven years.

Even then medical bills receive special treatment. Credit bureaus will remove medical collection accounts from credit reports if an insurance company is in the process of paying the bill.

For military veterans, some medical debts can’t be reported to the bureaus until one year after a procedure. Medical debt that was delinquent, charged off or sent to collection must be removed from credit reports once it’s fully paid or settled. Medical collection accounts may have a lower impact on credit scores than other types of collections accounts, though this isn’t guaranteed.

Credit Protection May be Lost After Consolidating Medical Bills

The special treatment given to medical debt can be lost if you consolidate your bills into a personal loan or onto a credit card. That means making on-time payments is even more important, since these accounts will report your activity to credit bureaus. Those who are responsible for payments might even build credit that way.

What Happens to Unpaid Medical Bills?

Nearly four in 10 American adults have medical debt, and one in 12 have significant debt. Medical debt accounts for more than half of all bills that are turned over to collection agencies by identifiable creditors, according to the Consumer Financial Protection Bureau.

If an individual does not pay, the hospital or healthcare provider eventually will sell unpaid bills to a debt collection agency. Then the hassling and credit wreckage begins.

It’s important to know your rights with debt collectors. There are limits to how aggressively they can pursue payments. Debt collectors can’t threaten a person or call before 8 a.m. or after 9 p.m. They’re not supposed to contact anyone at work – in some areas, that’s illegal. Finally there are ways to stop harassing calls from collection agencies, or at least limit them.

However, collections aren’t going away, so ignoring them is not an option. A collection agency will report non-payment, which damages the credit score and makes it harder and more expensive to get a loan in the future. Delinquent medical bills are not given as much weight as other debt, but they can stay on a credit report for seven years if they aren’t paid.

The bottom line: Figure out a way to deal with them before that happens.

Other Medical Debt Relief Options

Depending on the medical provider and other circumstances, there are additional options to paying medical debt.

• Medical credit cards: Not all providers offer payment plans, but they may accept medical credit cards that are interest free for 6-to-12 months. If you can pay off the debt in that period, they’re worth considering, but if not, the interest rate that kicks in will make this option much more expensive.
• Medical bill advocates: Consider hiring a medical bill advocate to negotiate on your behalf, especially after a long hospital stay. Advocates know how to examine health care bills and what are common costs for procedures. They can spot errors or overcharges that reduce how much you owe. Medical Billing Advocates of America can connect you with an advocate.
• Income-driven hardship plan: Low-income consumers with big medical bills may be eligible for an income-driven hardship plan that breaks the debt into more manageable, regular payments. It could even reduce the amount owed. You may have to apply for Medicaid before being eligible.
• Debt settlement: This is another form of debt consolidation. The goal is to pay less than what you owe. Either you or a debt settlement company negotiate with creditors to arrive at a payment both sides accept. You make a lump-sum payment, and the bill is settled.
• Bankruptcy: This is a last resort. Bankruptcy won’t help cover future expenses if yours is an ongoing medical condition, and its effect on credit can be severe and long-lasting – as long as 10 years. Study carefully before choosing this option, but for those who need to take this step, bankruptcy could be a fresh start.

Long-Term Strategies to Manage Medical Expenses

A strong option to paying significant medical debt is to plan before the debt arises. Long-term strategies can help because they are proactive and address a situation before it becomes a problem.

The first step is finding the best health insurance plan that fits the budget. Many employers offer excellent health care insurance plans; accepting them and enrolling is a must. For those who don’t have that option at work, the Affordable Care Act offers individual plans at several levels of coverage and cost. The more a plan costs in monthly premiums, the more it will cover. It’s important to assess health, income and budgets when deciding which plan is best. The right plan can avoid medical debt.

Some plans offer what is called a Health Savings Account (HSA). This accounts allows people to place pretax money into the account, and use that savings for medical bills. The annual limit on HSA contributions in 20024 is $4,150 for an individual and $8,300 for a family. Those 55 and older can make an additional “catch-up” contribution of $1,000.

If this kind of saving fits the budget, it’s an excellent way to prepare for medical bills. Keep in mind, though, that all money in an HSA must be used for approved medical expenses. Retirees should know that HSA accounts can pay for Medicare premiums.

Another important consideration is proper budgeting. Calculating income and expenses can show what comes in and what must go out. It also shows what is left over, which then can be set aside for medical expenses. Knowing that money is there is a satisfying feeling.

Is Medical Debt Consolidation Right for Me?

Don’t simply assume medical debt consolidation is the best choice if medical bills are outstanding.

Typically, there is no interest for medical bills and there is interest payment on all other forms of payments. Medical bills also come with credit protections that can disappear after consolidation. The convenience of a single payment may not be worth the risk or long-term cost on the credit report.

On the other hand, if you won’t benefit from these credit protections, medical debt consolidation may be right for you.

To help decide, ask yourself a few questions:

• Have you taken out a loan and are you paying interest on the debt? Worse, did you put the debt on a credit card?
• Can you pay your medical debt and still meet your other monthly financial obligations, like rent, grocery bills and car payments?
• Would consolidating eventually eliminate your debt, or would it make more sense to just file for bankruptcy and start over? Finally, using a loan consolidation calculator can help individuals assess if consolidation works for the budget.

Get Help Paying Medical Bills

Deciding whether to consolidate medical bills can be a difficult decision, but it does not need to be made alone. Those who are overwhelmed or simply need help can talk to a professional credit counselor from a nonprofit credit counseling agency like InCharge Debt Solutions.

A free counseling session, which can be done by phone, can help a person sift through difficulties to decide if consolidating debt is the right approach — or if other debt-relief options are better solutions.

Some good advice could be just what the doctor ordered.