Complete Guide to Financing Medical Expenses

Disclaimer: Upstart is not a financial advisor, the following content is for informational purposes only.

Medical debt continues to grow year after year – according to Credit Karma data, roughly 21 million Americans are holding $46 billion of medical debt as of April 2021. 

Here are more statistics that point to this growing problem: 

  • Almost a third of working American have some kind of medical debt; 28 percent of those owe $10,000 or more 
  • Nearly One in four Americans can’t pay back their medical bills 

Medical debt and collections 

When you initially have unpaid debt, you’ll first receive multiple bills, asking you to pay. The issuer may include additional late fees and warnings if you are unable to pay. 

If the debt is still unpaid, the bill is then sent to collections and you will potentially be contacted by a collections agency to pay your debt directly. 

During this process, your credit score may take a negative hit because of the unpaid medical bill. This could hinder you from getting access to the best interest rate or approved for any future financial applications, including other personal loans or credit card offerings.

In addition, you may receive unwanted phone calls from debt collectors. There’s an option of negotiating with the debt collector for either a lump sum or a monthly payment plan.

What to know about financing medical bills

Medical financing isn’t always as straightforward. There are ways to negotiate, finance, and even lower the amount you owe, just by potentially speaking with the provider directly. 

The first step is to review your medical bills and figure out how much of your debt can be covered by your health insurance–if you have insurance. Comb through your medical bills and look for any charges that seem suspicious or too high.

Then, call the provider and explain your situation. Leverage what you can—whether you’re facing no insurance or a job loss, there could be ways to reduce the amount you owe. 

What is a medical loan?

A medical loan is a personal loan that is used to pay for a financial medical bill. Medical loans can be used for elective surgeries, emergency procedures, or other bills related to medical expenses. 

Personal loans are typically unsecured, meaning, you don’t need to put your home or car up for collateral. Because of this, people who apply for medical loans need to generally have good credit to secure a low-interest rate. 

Personal loans provide an alternative to credit cards that may end up running you more in the end because of their high interest. Credit cards typically have higher interest than personal loans, with the average interest rate currently at 16.5 percent. For personal loans, interest rates fall approximately between 6 to 36 percent. But even with interest, a personal loan may cost less than what a medical provider would charge, once you add late fees and other penalties. 

Taking out a personal loan can help you consolidate your medical debt into one simple payment each month. This can be especially helpful if you have multiple bills to pay each month and simplifies the process. Because it’s a set amount that you pay back each month, it’s a predictable amount that can help you plan for your budget. 

How do medical loans work?

Medical loans work in the same way other loans do. You first have to apply to find out what rate you qualify for. Before you do that, check your credit score to see where you stand, financially. This can help set expectations for you.

However, if time is of the essence and you want to quickly pay off your bills, it’s important to shop around to find the best rate. Getting pre-qualified makes the entire process of rate shopping much faster, as lenders can quickly access your basic financial information. You may be asked to provide additional information such as salary, employment, and home address. 

Then, after you choose the lender that works best for you, fill out the application online, get approved, and get funded.

Once you receive your funds, you will then be on the way to paying back the loan with interest each month. 

For repaying the loan, many personal loans offer repayment terms, giving you the flexibility to pay it back in the length that best suits your situation. Make sure to find out if there are any prepayment penalties involved should you decide to pay back the loan early. 

Pros of a medical loan

We covered a few benefits of a personal loan, including fast funding (as long as you are approved), potentially lower interest rate than a credit card, one simple monthly payment, and not having to put down collateral. 

Here are more pros of taking out a medical loan:

Flexibility: You can use a personal loan to cover medical bills, treatments, and procedures, and even living and travel expenses related to those treatments.

No prepayment fee: Most personal loan issuers don’t charge a fee if you pay off your loan early. 

Budget-friendly: The predictability of a fixed amount to repay each month allows you to make adjustments to your other payments each month, or in the case of an unexpected expense. 

Cons of a medical loan

There are also a few cons of a medical loan. Here are the biggest considerations to make when choosing this kind of loan:

If you have bad credit: You may receive a higher interest rate, which means it will make your medical loan more expensive. The best way to set yourself up for the lowest rate is to get your credit score in good shape

Might make you stay in debt longer: This depends on your terms. If you choose a longer-term, you will prolong your debt, making it more expensive in the long run. You may pay more than the minimum balance and try to pay it off as quickly as possible to avoid paying more in interest. 

Alternatives to medical loans

There are other options to a medical loan—whatever path you choose to help cover your medical costs depends on your financial situation and mindset. 

1. Credit cards

Credit cards are the most common because you likely have one in your wallet already. If your medical debt or procedure isn’t too costly, it could be a viable option. If you’re wary of applying for a new credit card, call up your existing credit cards and ask if there are any promotional offers—for example, issuers sometimes have a limited-time promotion if you use their balance transfer checks to consolidate loans or pay off other credit cards. 

These types of transactions usually come with fees of 3 to 5 percent of the balance you’re paying off, which means you’ll pay between $30 to $50 for every $1,000 you transfer. 

Or perhaps you have good credit and received a new credit card offer in the mail for a zero-interest introductory offer. This would be another way to pay off the debt within a certain timeframe, usually 12 to 18 months before you have to start paying the interest. The key is to pay the debt before the introductory offer ends so you can avoid paying interest fees, which may jump up to around 16 percent or higher.

Be sure to understand how much the interest rate will be and read the terms and conditions carefully before going this route. 

2. Ask about a payment plan

Going straight to your medical office and asking about payment plans could also be an option. If you’re lucky, some will even forgo interest charges. 

Ask your medical office’s administrative personnel about payment for the procedure and find out what the options are. This could also be a great time to ask for a discount if you can pay for it upfront in a lump sum. 

3. Health savings accounts

Another option is to look into your HSA, or health savings account or FSA, flexible spending account. These types of savings accounts are only offered through your employer, and the funds are taken directly out of your paycheck each month. This allows you to put money into a tax-free account and use that money to pay for medical-related expenses. 

If your employer offers this, consider signing up if you know you’ll have a lot of procedures done in the year or tend to make frequent trips to the doctor.

4. Medical credit cards

Medical credit cards are similar to credit cards, with two main differences—one is that they can only be used to pay for a medical service. The second is they offer deferred interest. This means you may receive a zero percent introductory period, but unlike a zero percent APR credit card, if you don’t pay off the debt in full within the deferred interest timeframe, you will be required to pay the debt, plus the interest that’s accumulated.  

Medical credit cards are a good option if you know you can pay off the debt within that time frame. 

Before you choose an option for medical financing 

Whichever route you choose to pay for your medical bills, just remember these two rules: 

  1. Always try and negotiate: Call up your medical office’s billing department and see if you can receive a discount on your bill, set up a payment plan, or ask for options of how they can help you.

  2. Double-check your medical bills: Mistakes are made all the time. Carefully check your bill to ensure the total amount is correct. If something looks incorrect, be sure to note that when you call and negotiate. 

Having to pay back a large amount in medical debt isn’t ideal, but if you’re faced with this situation, know there are options to help you. 

You could try paying the debt partially off with a personal loan and then negotiate the rest in a payment plan. The most important thing is to make sure you have a plan put in place to pay down the debt as quickly as possible.

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