According to reports, 32% of Americans hold medical debts, and more than half have defaulted on it.
This is not all too surprising, considering that Americans pay roughly double the amount for health care services than Europeans.
Medical debt can come out of nowhere and hit hard, even if you have health insurance. What’s more, medical events can often also cause a loss or reduction in income.
These factors can make medical debt feel like a financial nightmare.
However, there are ways of managing medical debt. One of these is through debt consolidation. However, to consolidate medical bills effectively, there are a few things you need to know.
Debt consolidation is not always the most common method for squashing medical debt, as it can have some pitfalls if not implemented wisely.
If you want to know how to consolidate your medical debt like a pro, then read on as we share with you 4 key consolidation strategies.
1. Avoid Personal Loans If Your Only Debt Is Medical
If you are trying to figure out how to pay off medical debt, you might have already considered taking out a personal loan to consolidate it.
While personal loans can be good consolidation solutions for certain types of debt, they are not the best option for medical debt.
Why is this?
The reason is that medical debt typically does not attract interest. Personal loans, on the other hand, do.
Therefore, by taking out a personal loan to consolidate your medical debt, you will be converting debt that is interest-free into debt that attracts interest.
2. Take Advantage of Zero-Interest Balance Transfer Offers
While personal loans are not an ideal method for paying off and consolidating medical debt, zero-interest balance transfer cards can be.
Balance transfer cards allow you to shift existing credit card debt and consolidate it. They can also be used to resolve other debts.
Certain balance transfer cards also offer an interest-free period, usually between 12 and 24 months. During this time, you can manage your medical debt (and possible other interest incurring debts) and work off the balance on your card.
However, it is important that you payoff the debt within the interest-free period. If there is a balance left on the card after this, you will likely be charged standard credit card rates of interest, which currently stand around 21%.
3. Utilize a Debt Solution Service
Another method for consolidating debts, including medical debt, is to use a debt solution service. Debt solution companies work with creditors on your behalf.
In many cases, they are able to get a portion of the total debt forgiven and better rates of interest. In the case of medical debt, you probably won’t have any interest to reduce. However, getting a portion of the total debt written off can help significantly in enabling you to pay back the remainder.
You will typically be directed not to make payments on your debts. This money is accrued in a special account while the debt solution company works with your creditors. Once a deal has been agreed upon, you will be freed from collection attempts, and your debt will have been transferred to the debt solution company to be paid back on new terms.
Once again, it is important you make sure that you will be able to meet these terms. Debt solution can have a negative effect on your credit score. However, if you keep up with the new payments, you will be able to build it back up.
On the other hand, if you default on your payments to the debt solution company, your credit score will once again be negatively impacted.
When considering whether to utilize a debt solution company, you will need to work out whether the portion of your medical debt that they may be able to have forgiven will make up for any interest and fees that the company charges.
As medical debt does not incur interest, even when it is with collections, you need to play it smart when consolidating this debt type.
4. Consider Working With a Debt Consolidation Company If You Have Multiple (Interest-Bearing) Debts
Do you have other debt besides medical debt? If so, you can also consider working with a debt consolidation company.
Consolidating debt has a number of advantages. The first is that all of your debt is in one place, which makes payments easier to manage. The second is if any debts are with collections, consolidating them will rid you of collection agents contacting you.
Thirdly, in the case of interest-bearing debts, consolidation can often allow you to gain a better overall rate of interest across your debts.
For medical debts, however, consolidation will convert them from interest-free debts, into interest-bearing ones. In many cases, this is not practical. However, if you are struggling to keep track of all your debts—and have a number of high-interest liabilities such as credit cards—a solution from a debt consolidation company might be a worthwhile option.
Although it is never a good idea to take out high-interest debt to pay off medical bills, many people use their credit cards for this. The result can be large negative balances incurring crippling amounts of interest.
If you have already used your credit card to cover medical costs, and are struggling under the fallout, then the services of a debt consolidation company could be the key.
Debt consolidation companies are typically more lenient around credit scores than other lenders. Therefore, if your credit score is too low for you to apply for a personal loan or a zero balance transfer card, you might find that you can still consolidate your debt with these solution providers.
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