By Michael Wong, M.D.
Disclaimer: Michael Wong is a cofounder of Walnut. Walnut is a modern and ethical option for patients looking to pay for medical procedures. Find out more at hellowalnut.com
As the cost of medical bills rise, Americans everywhere are finding it harder and harder to pay them. A recent financial survey by Bankrate revealed only 39% of respondents could cover a $1,000 cost using their savings. As you may well know, $1000 could be negligible compared to the prices of some surgical or dental procedures.
In addition, about 40% said they have already depleted their savings to pay medical bills, another 40% said medical debt hurt their credit, as unpaid medical bills can be sent to collections.
So how the heck are you supposed to find the money to cover your hospital bills? Well, there are a few options, some much better than others. In this article, we’re gonna go over the different ways you can pay down that medical debt.
- Medical Credit Cards
- Personal Credit Cards
- Medical Loans
- Personal Loans
- Provider Payment Plans
Medical Credit Cards
Medical credit cards are a common option, used by many Americans to pay down their medical bills. They can be quite tantalizing, with their large banner of 0% interest, but let’s take a closer look.
- Often quick approval (if the patient has a good credit score): medical credit cards are known for their rapid approval and application process. This helps patients get credit quickly and easily.
- Zero-interest financing, often in the form of deferred credit*
- Widely applicable to other procedures and costs. Some cards are even built to be used within a network of providers.
- Ability to pay over time: reduces the immediate burden of paying for a procedure by breaking it up to smaller monthly payments.
- Deferred Interest: Remember that 0% interest we were talking about? Well that isn’t the full story. These medical credit cards usually offer a 0% or low introductory rate to attract customers. However, this “promotional” period may only last a few months. If you fail to pay off your full balance or miss even one payment during that time, a high interest rate kicks in. This rate often applies retroactively to your original full balance! Interest rates can be as high as 30%! As these are often used for unaffordable procedures, it’s often these deferred interest rates are triggered and patients are stuck with an even higher bill than when they started
- Deceptive lending practices: Many patients do not receive information about these practices, and thus fall prey to these lending practices.
- Pushy Marketers: Many customers have complained about receiving constant harassment and promotional emails, again attempting to entice them with potential “promotional” offers.
It might be difficult, if not impossible, to pay off your balance by the time a deferred-interest period ends. Recently, CareCredit, one of the largest medical and dental credit card companies was hit with a $34 million lawsuit for their lending practices. This is an option offered by many cosmetic and dental practices. You may be tempted to apply for a medical credit card due to the ease of financing, without reading the fine print. However, as with anything, care should be exercised before choosing these options.
Personal Credit Cards
An alternative to the medical credit card, is none other than a regular credit card! There are, thankfully, credit cards that offer 0% APR interest during a promotional period, without the use of deferred interest. The catch? We’ll let’s find out
- Low or zero percent promotional interest: many credit cards offer new users lower or 0% interest
- Possible additional rewards and perks: some credit cards come with additional rewards and perks, including cashback (cha-ching!), concierge perks, travel insurance etc.
- Greater flexibility: whereas medical credit cards may only be used for medical procedures, a regular credit card may be used anywhere. This may also be a con, as discussed below.
- High interest rates: after the promotional period is over, interest rates are hiked and can be monumental. This can create a sudden jump in how much you need to pay every month.
- Higher credit score required: often these low interest credit cards require higher interest than the alternative options. This may preclude many patients from accessing this line of credit
- Greater flexibility: Wait, wasn’t this part of the “Pros” segment? Yes, while flexibility to use this card anywhere can be great, it’s use elsewhere may lead to a higher bill than you expected. Couple this with high interest rates and this can be a recipe for disaster. Isolating a credit card solely for medical purposes may help you keep track of expenses as well as for tax purposes.
It’s often a good idea to take a look around to see what cards you like and/or qualify for. In addition, there are multiple tools, like payment calculators, that you can use beforehand to predict whether or not you can pay off your credit card debt in a reasonable time.
An often overlooked option to paying for your healthcare is a medical loan. A medical loan is a special type of loan that is used to pay for medical care. This can be for a surprise trip to the emergency room or for a planned elective procedure. Typically, these are available from a bank or online lending. Let’s take a deep dive into the benefits and the risks of these medical loans:
- Lower interest rate: Often times, medical loans come with lower interest rates than credit cards. Compared to the double digit APR of credit cards, you may be able to find a medical loan of an interest 6% or less.
- Unsecured: Unsecured means you do not have to put up collateral for these loans. So you don’t have to put up your house or your beloved car, and defaulting means lenders won’t take property away from you.
- Fees: There can be more fees to medical loans than with other alternatives. Important to note is the origination fee. Some lenders charge a one-time origination fee to cover the cost of processing the loan. The fee can range from 1% to 6% and is included in the APR calculation. Lenders may subtract the origination fee from the loan total. For example a $1,000 loan with a 3% origination fee would cost $30, leaving you with $970. This may leave you with less than the amount needed for the procedure.
- Strong credit required: Higher credit scores are required to qualify, usually with a score range of 670- 740 and above. While lower credit scores may be approved, it comes with a larger interest rate.
- Fixed or variable rates: loans rates may be either fixed (stays the same) or variable (interest rates rise and fall), which may lead to unpredictable payments.
Lots of factors to look at when considering a medical loan. Here’s some questions you should ask yourself before you settle on a medical loan:
- What is the loan’s annual percentage rate (APR)?
- Are the rates fixed or variable?
- What’s the origination fee?
- What’s the loan term?
- How quickly is the loan process and when can I get the money?
You don’t have to settle for the first lender you find. Shop around and use proposed rates as a negotiation tactic for your next lender. Also, remember, using a loan calculator may help you decide if a medical loan makes sense for you.
More popular than a medical loan, is the personal loan. People have used the tried and true personal loan to pay off debts for decades. From paying off a car to a business expense, a personal loan is a simple way to get a large cash sum.
There are similarities between a personal loan and medical loan, but there are also some very important differences. Let’s find them out here:
- Lower interest rates: Again, loan interest rates are often times lower than credit card rates.
- Secured loans: This is an option for those with equity in their homes or have other forms of valuable property. HELOC (home equity line of credit) or home equity loan (Second mortgage) can create a secured loan, with your home as collateral. This makes the lender see you as less risky and thus often means better interest rates and tax deductibility. You can imagine what the downside is.
- Flexibility: Personal loans may be used for almost anything.
- High Credit Score: For borrowers with poor credit, not only are interest rates higher, but some lenders add on additional fees. Fees may include a 4.75% administration fee, as well as late or unsuccessful payment fees.
- Secured loans: Remember when you thought putting your house as collateral was a good idea to lower your interest payments? Well, if you fail to make your payments, you may lose your home.
Provider Payment Plan
If all else fails, it never hurts to ask your provider for a possible payment plan. Providers want you to be able to afford the procedure as much as you do. Sometimes, providers may offer a payment plan with no interest, reducing the hassle and burden of many of the options discussed above.
Additionally, some providers and hospitals offer financial assistance programs to lower the cost of treatment. These are mainly income based. I have written a great blog post to help you lower your cost of services. If you don’t ask, you won’t know!
We’ve done it! We went over and compared the five different ways you can pay that pricey medical bill. Hopefully, the take-away here is to do your homework. There is not a best option, but rather find the best option that works for you.