(Maine Credit Unions Financial Literacy Blog) – According to the Centers for Disease Control and Prevention, almost a third of working Americans have some sort of medical debt. In the United States, the cost of treatment for an accident, illness, or pregnancy can reach highs that are difficult to afford—even with insurance. Not having enough money saved away, and the stress of overwhelming bills and collection tactics often turn people to plastic. However, should you be paying off medical debt with a credit card?
While promptly paying with your credit card may seem like a quick fix, it can actually cost you more in the long run. That’s especially true if making your payments in full and on time would be difficult. Before turning to your credit card to pay off medical bills, you should be aware of the following:
Negotiate Your Bill
If you’ve been hit with a medical bill you simply can’t afford, try working with the hospital’s billing department. They may be inclined to settle on a lower price in lieu of selling your debt to a collection agency for a fragment of the original amount. Additionally, your medical provider may even accept less money if you agree to pay immediately. A prompt payment at a negotiated price is often a more attractive option to the provider than having to chase payments. Before you pull out your credit card to cover the bill, make an effort to negotiate.
Set Up a Payment Plan
Many medical providers, including physicians, dental offices, and hospitals, may work with you on a payment plan if you can’t afford to pay one large sum. By breaking the bill up into monthly payments, it can be much more manageable. Paying all at once on a credit card can backfire if it takes you too long to pay it off—especially if your card has a high interest rate. Instead, find out if an interest-free repayment plan is an option. If a repayment plan is an option, but it isn’t interest-free, compare the APR to your credit card.
Consider Your Credit Score
If you’re trying to decide between a repayment plan and a credit card, it’s important to keep in mind that credit card companies can report late payments to the credit bureaus once they’re 30 days past due, but health care providers typically won’t report late accounts for at least 6 months. Also, if you do decide to pay a large medical bill with your credit card, you could potentially eat up too much of your available credit on that card. The general rule of thumb is to keep your credit utilization ratio at 30% or below. For example, if you have a credit card with a $1,000 limit, you should be keeping your balance at $300 or less. A higher utilization rate lowers your credit score and signals to prospective lenders an increased risk that you will fall behind on payments.
To summarize, should you be paying for medical debt on a credit card? If you can’t pay right away, putting your medical bills on a credit card could create even more debt. Most medical debt does not carry interest, but a credit card will accumulate interest if you carry a balance and don’t have a 0% rate. If you don’t think you’ll be able to pay it off right away, working with your medical provider on a payment plan maybe be a better, safer option. Also, consider reaching out to your local credit union to see how they can help.