Escalating medical debt

Medical debt is the number one cause of bankruptcy filings in the United States.  A combination of rising medical costs and cutbacks in insurance coverages has created a perfect storm of medical bills that many people are unable to pay.  The healthcare industry blames much of this on technological advances in medicine that have greatly advanced the state of the art, while simultaneously increasing the overall cost for medical care. 

New medical equipment costing hundreds of thousands of dollars has made healthcare better than ever, and hospitals are recovering that cost from patients through skyrocketing bills that are not always covered by insurance.  Many people are using credit cards to pay for the uncovered or uninsured portions of their bills, further compounding their debt problems with excessive interest payments.

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How medical debt affects your credit rating

Failing to pay medical bills will directly impact your credit report after three things occur:

  1. As a general rule, the medical provider will write off the bill 180 days after not receiving any payment.
  2. At this point the bill will be sold or assigned to a debt collection agency.
  3. After receiving the account for the unpaid debt, the collector will attempt to make a collection on the account.

The debt collector will most often notify the three major credit bureaus of the outstanding debt.  Once this has occurred, banks and insurance companies will have access to this information which may make it difficult or impossible to obtain loans and purchase medical insurance in the future.

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Benefits to settling medical debt

Settling your medical debt is the preferred option in order to achieve peace of mind and to minimize your overall cost.  By seeking a settlement, it may be possible to reduce the total bill, eliminate interest charges for late payment, and avoid negative entries on your credit report.  Before attempting a settlement, it’s important that you independently validate all the charges and exact dates of service.  If you find errors, notify the provider in writing of the nature and amount of the suspected errors, and request that they be corrected.  It’s always wise to contact the medical provider as early as possible to try and work out a solution before the problem gets to be unmanageable.  You can do this on your own or with the assistance of a debt counselor.

medical debt

Settling medical debt

Medical debts are unsecured, meaning you haven’t pledged any collateral to guarantee their payment.  Therefore, creditors are often more apt to settle these debts because it is difficult and time-consuming to attach your assets to satisfy the debt.  A better option is to negotiate a settlement with the provider for something less than the amount you owe.  If your financial condition is precarious, many service providers would prefer to get less payment than no payment at all.  It also saves them the time and expense of taking legal action to force the collection.  They also run the risk of taking such action only to discover that you have few or no assets available to satisfy a judgment against you.

If you have equity in your home, a home equity loan is a good option since the interest on these loans is tax deductible, and interest rates are at all-time lows.  This option has recently become much less attractive as home values have declined across the country.

Government help for medical debt

There is financial aid available from the government to help pay for your medical expenses.  U. S. citizens who are unable to pay their medical bills can apply for health care grants.  Unlike loans, grants do not have to be paid back, and they are available to those with bad credit and those who have declared bankruptcy.  The application for a personal need grant does not require a credit or background check.  Medicare and Medicaid are available to those who meet the qualification criteria.  Many states also offer assistance to those who can adequately demonstrate financial need.