How to Consolidate Medical Debt

Medical bills can arrive at the worst possible time. Whether it’s an unexpected ER visit or an extended hospital stay, health-related expenses can add up quickly. When multiple bills start arriving from different providers and with different due dates, it can be hard to keep track of them all.

Debt consolidation for medical bills is one potential solution that you might consider to help you manage your medical debt.

What is medical debt?

Medical debt is any unpaid balance related to health care services or treatments, including expenses from hospital stays, emergency room visits and prescription medications.

How does medical debt affect your credit?

If you have certain unpaid medical debt, it can negatively affect your credit score. However, the rules about credit reporting for medical debt are different than other types of credit. The three major credit bureaus — Equifax, Experian and TransUnion — no longer include medical collection accounts under $500 on credit reports.¹ For debts over $500, the credit bureaus have extended a 12-month grace period before unpaid medical bills can appear on your credit report.² Because of the 12-month grace period, you may have time to resolve bills or work through insurance issues before your credit score is affected. Check your state’s laws for the most up-to-date information.³

According to the Consumer Financial Protection Bureau (CFPB), having medical debt doesn’t necessarily mean a borrower is less likely to repay other types of debt, such as loans or credit cards.⁴

What is medical debt consolidation?

There are many ways to consolidate medical debt. One possibility is combining multiple outstanding debts into one loan with a single, fixed monthly payment. You may determine it makes sense to consolidate unpaid medical bills not covered by insurance. Consolidating your medical debt can simplify repayment by replacing several separate bills and due dates with one fixed monthly payment and a set payoff date.

However, it’s important to note that consolidating medical debt changes how your debt is classified by the credit reporting agencies. Once you consolidate your medical debt, it’s considered consumer debt, not medical debt, so there’s no grace period for missed payments or exceptions for debt under $500.

How to consolidate medical bills with a personal loan

A debt consolidation loan is a personal loan you can use to pay off different kinds of debt, including medical debt. A debt consolidation loan won’t lower the original amount you owe, but it could give you a more structured way to repay it.

Say you have $6,000 in medical-related bills:

• $3,000 from a hospital visit
• $2,000 for dental work
• $1,000 for an MRI scan

If you qualify for a $6,000 debt consolidation loan, you’ll get a lump sum of money that you can use to pay those bills. As long as you make your payments on time, you’ll have predictable monthly payments, a fixed interest rate (the cost of borrowing) and a set payoff date. Knowing how much you’ll pay each month and when your loan will be repaid can help you maintain a more consistent budget while providing a clear path to get out of debt.

How does a debt consolidation loan affect your credit score?

Applying for a debt consolidation loan triggers a hard credit inquiry, which will cause a small, temporary dip in your credit score. If you’re shopping around for a loan, you may avoid unnecessary hard inquiries by prequalifying with different lenders first. Prequalifying can help you estimate your loan payments and terms without affecting your credit score. Your prequalification offer isn’t guaranteed, but it can be a good way to get a sense of what you might qualify for.

Since consolidating medical debt turns it into consumer debt, late or missed payments may begin negatively affecting your credit score right away. On the other hand, consistently making on-time payments to your lender may help build a positive credit history over time.⁵ A debt consolidation loan could also add more variety to your credit mix, which is the different types of credit accounts you have. A diverse credit mix could have a small positive impact on your credit score.⁶

Other ways to manage medical debt

Consolidating medical bills with a personal loan is one approach to managing medical debt, but it’s not the only one. Depending on your situation, there may be other ways to manage what you owe.

Understand your insurance coverage

Take time to review what services are covered by your health insurance, what isn’t and how to follow up on claims that were delayed or denied. Sometimes a bill can be reduced by resubmitting a claim correctly.

Review and verify your medical bills

Ask for itemized bills and check carefully for errors, like duplicate charges or services you didn’t receive. Billing mistakes happen. Catching them early could lower your balance.

Ask your providers about payment options

Many healthcare providers offer payment plans, financial hardship programs or sliding-scale options for patients who need extra support. These programs aren’t always advertised, so don’t be afraid to ask. You may also be able to negotiate your medical bills with each individual provider.

Consider using a credit card with a balance transfer offer

Some people choose to move medical debt to a credit card with an introductory or promotional low or 0% annual percentage rate (APR) offer. APR is the yearly cost of borrowing. Using a credit card with a balance transfer offer could reduce what you pay in interest over time if you pay off the full balance before the promotional period ends. Just keep in mind that, as with using a debt consolidation loan, using a credit card to consolidate your medical debt turns it into consumer debt, meaning missed or late payments of any size could hurt your credit score.

Debt management plan (DMP)

A debt management plan (DMP) is a structured repayment program designed to help you organize and manage payments for eligible unsecured debts. Medical debt is just one type of debt you could enroll in a DMP. A DMP is set up and managed through a nonprofit credit counseling agency, which works with your creditors to create a payment plan. Once enrolled, you make one monthly payment to the credit counseling agency, which then sends the money to your creditors according to the terms of the plan.

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Is medical debt consolidation right for you?

Medical debt can seem overwhelming. A debt consolidation loan or a debt management plan could be a helpful way to pay off your medical bills.

Before choosing your path forward, you may find it helpful to create a list of your balances, due dates, payment portals and any relevant insurance updates in one place. From there, you can use a debt consolidation loan calculator to explore whether consolidation might make sense for you. With a clearer view of what you owe and how repayment might fit your budget, it’s easier to compare your options.

Sources

1,2 https://www.equifax.com/personal/education/credit/score/articles/-/learn/can-medical-debt-impact-credit-scores/
3 https://www.congress.gov/crs-product/IF12169
4 https://www.consumerfinance.gov/archive/newsroom/cfpb-proposes-to-ban-medical-bills-from-credit-reports/
5 https://www.myfico.com/credit-education/credit-scores/payment-history
6 https://www.equifax.com/personal/education/credit/score/articles/-/learn/what-is-a-credit-mix/