The current administration is getting a lot of press coverage for their proposed health care reform, which aims to lower the cost of health care and to extend coverage to all Americans. While this is something that is going to (maybe) bring a solution in the future, there is a very current problem right now for people who are faced with a mountain of medical debt right now and have no idea how they’re going to pay for it. Hospitals and doctors, pressed for cash, now routinely sell their uncollected payments to bill collectors, and nobody likes having to deal with those people. So if you need to eliminate your medical debt, here are your options. Review your financial situation do decide which one is right for you.
Medical Debt Consolidation using the equity in your home. If you’ve bought your house a few years ago, you’ve probably been paying off some of the money you owe on it and have built some equity. Assuming that this equity hasn’t evaporated with the real estate prices that have gone crashing down, then you can use part of it to refinance your home loan and pay off your medical debt. This makes sense because any other loan will carry a higher interest rate than your home equity loan. There are big drawbacks, though. First of all, your mortgage payments will rise; the only way for that not to happen is if you had a high interest rate and the lower rate you get on the new loan offsets the fact that your balance is now higher. Secondly, you need to understand that not making your payments will result in losing your home.
Medical Debt Negotiation. More and more people are choosing this approach instead of letting their medical debt go bad. Contrary to what a lot of people thing, doctors and hospitals are willing to negotiate with you, if only for the fact that a partial payment from you is way better than no payment at all. About half of the people who ask for their bills to be reduced actually succeed, and they credit their success to two things. First of all, they asked to talk to someone who actually had the power to make a decision. Secondly, they’ve been persistent, because the first couple of people you will be talking to might very well tell you that this is not something that is possible. Be persistent, firm, and polite, and you might save a ton of money.
Transfer to Credit Cards. This one can be very tricky. If you get a credit card offer for a balance transfer and an extended, locked 0% interest rate period, you might give it some thought, but not before checking a number of things. First, you need to know how long is the no interest period. Is it realistic for you to expect to have paid off the debt in that time frame? And once the interest-free period ends, how are your payments calculated? You might be surprised to learn that in most cases, once the teaser rate expires, your payment is calculated on the balance you had when you made the switch, not the balance you have at the end of the moment. This is why this can either be very good or very bad, depending on whether or not you managed to pay everything off.
Credit Counseling. If your finances are totally disorganized because of medical debt problems, you can hire the services of a credit counseling company. They can be a great choice if you are having trouble managing your finances. Most of them are non-profits and are great at advising you on your money and debts, helping you develop a budget, and will likely offer you free education materials. Do your research though, and sign up with one that has a proven track record.
Bankruptcy. When it comes to personal bankruptcy, about half of them are caused by medical debt. Doing so takes bill collectors out of the picture and you earn a fresh start as most of your debts are forgiven; your credit is ruined though and the filing remains on your credit report for 10 years. In some cases, if your condition requires that you keep getting medical treatment, the bankruptcy can turn out to be nothing but a temporary fix, since the bills will be start mounting again. In any case, this should really be a last resort.
It’s possible to use any of those five methods to get rid of medical debt. You can even use of combination of two or three methods to achieve the best results. What you choose to be will be dictated by your financial situation, but one thing that’s for sure is that you need to work on solving the problem because it will not go away on its own.
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