Can Debt Consolidation Help With Medical Bills?

Medical debt isn't the same as other forms of debt

Updated May 13, 2024
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Healthcare costs are increasingly becoming a bigger part of many Americans’ household expenses. In fact, according to the Bureau of Labor Statistics, the average household spends $4,928 on healthcare each year.

However, that doesn’t even take into consideration what happens if you run into a medical emergency. A few years ago, I broke my wrist to such an extent that I required surgery. Even with insurance, my out-of-pocket cost was more than $10,000. Coming up with that type of money can be difficult — especially when you consider that most American workers live paycheck to paycheck as it is.

It’s not uncommon for people to end up with medical debt, and that it can feel crushing. If you’re struggling with how to pay off debt from medical bills, consolidation might be an option. However, before you proceed, it’s important to understand a few things.

How Do You End Up with Medical Debt?

First, it’s important to understand that your medical bills don’t immediately become debt. For example, I called my hospital and asked about billing options, since I couldn’t pay the entire amount up front. The hospital put me on an interest-free payment plan and in a little more than a year, my bill was settled.

Your bills mostly become debt when a healthcare provider turns them over to collections. If you can’t make payments and don’t make arrangements for a plan, after a while, your bill is sent to a collections agency. It’s at that point your bills turn into debt.

Another way your bills can become debt is if you take a line of credit to pay the bill. One example is for dental work. Some dental offices will help you establish a line of credit with a specialized company. You think you’re setting up a payment plan, but really you’re getting a loan. Since this is a line of credit, missed payments can be reported to the credit bureaus.

How Medical Debt Is Reported on Your Credit Report

In most cases, you’re not likely to see medical debt on your credit report until it goes to collections. However, there is a 180-day grace period before medical debt appears on your credit report. This gives you time to straighten out the situation or get your insurer to settle a claim.

How Long Do Medical Bills Stay on Your Credit Report?

Once the debt is on there, and you pay it off, check to make sure it’s been marked as paid on your credit report. A delinquency remains on your account for seven years, like other missed payment marks. However, as time passes with you making other improvements to your finances, your credit score will improve.

However, the new FICO 9 scoring will treat medical debt differently, reducing the degree to which it impacts your credit score. FICO found, in its research, that medical debt has little bearing on your overall level of financial responsibility. Because medical bills are so often the result of extraordinary circumstances, they don’t reflect creditworthiness as accurately as other transactions.

Do Medical Bills Have a Statute of Limitations?

Finally, if you want to dispute medical debt, you can check with the statute of limitations in your state to see if you can have it discharged. On average, you’re likely to see limitations of between one and six years, although some states go all the way up to 15. Have a knowledgeable attorney see if some of the debt can be wiped out due to a provider or collector not making efforts within the appropriate time limit.

Can You Go To Jail for Not Paying a Medical Bill?

Many people worry that they’ll go to jail for not paying their debts. However, you can’t go to jail for not paying a medical debt, but if the debt is within its statute of limitations, the creditor holding the debt can still sue you. If the creditor wins, you could have your wages garnished to pay the debt, or face other consequences.

Consolidating Medical Bills

If you have a lot of bills, you might want to get them all in one place so they are easier to manage and keep track of. I know that, in addition to my hospital bill, I had to manage bills for physical therapy and follow-up visits with my doctor as my wrist healed. I managed to keep it all straight, but I had to use a spreadsheet and follow up to make sure I wasn’t being overcharged.

For some consumers, though, it’s easier to consolidate everything into one payment. Unfortunately, that can introduce other elements. Your medical debt consolidation is likely going to be the result of borrowing a pretty decent chunk of money. Some consumers consolidate their medical bills by paying them with a credit card or by getting a personal loan and paying off all the bills.

Can You Get a Loan For Medical Bills?

Yes, you can and many do shop around for the best personal loans after exhausting their options with the hospital’s billing department. While it won’t erase your debt, an unsecured personal loan could provide some relief with lower interest rates. Plus, as an unsecured loan, your refinanced medical debt won’t jeopardize secured assets, such as your home, if you fall behind on payments.

Problems with Medical Debt Consolidation

Consolidating medical debt does come with challenges, though — the biggest one being that once you’ve moved them from the hospital or the doctor’s office, your bills are no longer strictly “medical” debt. Now it’s regular unsecured consumer debt, and you don’t get that 180-day grace period before missed payments are reported to the credit bureaus.

On top of that, now you’re paying interest. Unless you sign up for a healthcare credit plan at your provider’s office, in many cases you’re not likely to pay interest if you set up a payment plan with a healthcare provider. Once you consolidate your medical debt with a loan or credit card, now you’ve got interest charges.

One of the only reasons to consolidate your bills is if you are using a healthcare credit line and you can get a lower interest rate with the help of one of the best balance transfer cards or a personal debt consolidation loan. Otherwise, if you can work out an interest-free payment plan with your provider, you might be better off. You’ll just need to come up with an idea to track your bills.

Negotiate Medical Bills with Your Provider

Did you know you can negotiate your medical bills? Before you try medical debt consolidation, consider talking to your healthcare provider. Ask if there’s a discount if you can pay a certain amount up front. I received a 10 percent discount on my son’s braces treatment plan because I was willing to pay my portion up front.

Don’t forget to look for billing errors. Ask for an itemized bill, especially from the hospital. Most hospitals have an ombudsman that can answer questions and help you make sense of the bill. It’s very common to find billing mistakes and overcharges, so start there when you want to see a reduce bill.

If you can talk to your provider about your situation and work out a reasonable payment plan, though, you might not have to pay interest, and you might end up with a manageable way to get rid of the bills — without borrowing money.

However, if your account has already been turned over to collections, or if things are getting out of hand, it might be easier to reduce the hassle with the help of medical debt consolidation.

Bottom Line

Medical debt can be a daunting problem to deal with. Too often, the problem is ignored until bills are in collection and options to get out of debt are limited. However, if you tackle the issue of your bills head-on by talking to your provider and figuring out a payment plan, you might avoid medical debt being reported to the credit bureaus, save money, and not need to worry about medical debt consolidation at all.

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Author Details

Miranda Marquit

Miranda Marquit has covered personal finance for more than a decade and is a nationally-recognized financial expert and journalist, appearing on CNBC, NPR, Forbes, Yahoo! Finance, FOX Business, and numerous other outlets.