It’s simply not a good idea to use your credit card to pay for medical costs, especially now that a more consumer-friendly law was implemented nationwide last fall. Many Americans are smothered in credit card debt and others face mounting medical debt due to a combination of high deductibles and alarmingly high out-of-pocket expenses.
Why mix the two? It’s a combination that can only put you further in debt by paying exorbitant credit card interest rates that will, ultimately, harm your credit score.
Before pulling out that plastic card to pay your medical bill, remember that it’s a lot easier negotiating with a hospital than it is with a credit card company. The former is simply more flexible, while the latter usually won’t budge.
Hospitals may work with you
Many hospitals will work with you in setting up a payment plan, either at low interest rates or, sometimes, interest-free. Once you have an agreement in place, make sure that you abide by it. Hospitals want to see that you are making regular attempts toward making payments.
Hospitals and physicians do not report a person’s medical bills to credit-reporting agencies. Your credit score won’t be affected even if you’ve made a late payment. However, this will change if you neglect to pay your bill for a long enough time and your case gets sent to collections. (Hospitals and physician’s offices typically retain collection agencies to collect from patients.)
Medical debt won’t go on credit for 180 days
But you still will have time to organize a payment plan, though, even after your bill has been sent to a collections agency. Under a new law implemented in September, the major credit reporting agencies – Experian, Equifax and TransUnion — are required to wait 180 days before including medical debt on a person’s credit report.
The six-month period will give you time to work things out. And once that period has been met, the newer credit-scoring formulas that kick in don’t view medical debt as severely as credit card debt.
Collections are after 43 million people for medical debt
According to a 2014 report by the federal Consumer Financial Bureau:
- Roughly 43 million Americans have medical debt that’s in collections, thus unfavorably affecting their credit scores
- The average amount of medical debt in collections was $579, compared with $1,000 for non-medical debt.
- Medical debt was the only flaw on the credit report of some 15 million people.
Medical debt is not a good indicator as to whether someone is a good credit risk. One never knows when an emergency medical situation will arise, thus bringing potential financial hardship to a family. When it comes to paying your medical bills, try to work with your hospital first. Save the credit card for some other expense.