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Medical debt is the leading cause of bankruptcy, data shows

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Unpaid medical bills are a costly burden that can leave a long-standing stain on a credit history and send debt collectors home. Medical bills can even be a potential hurdle for patients who are reluctant to seek care.

Nearly one in five Americans has medical debt in collection, which means millions of consumers haven’t been able to pay for often-needed medical care. In fact, medical debt is the leading cause of bankruptcy in America, according to the National Consumer Law Center (NCLC), and more than half of debtors have medical debt as part of their bankruptcy filing.

Declaring bankruptcy can be an effective way to get medical debt relief, but it has consequences. Chapter 7 bankruptcy can last up to 10 years on your credit report, according to TransUnion. This could make it harder to qualify for credit, such as a mortgage or student loan.

Fortunately, there are several ways you can reduce your medical debt or even get forgiveness for your hospital bills. Keep reading to learn more about your medical debt relief options including financial aid and debt consolidation loans.

If you do decide to borrow money to pay your hospital bills, make sure you are getting the lowest possible interest rate by comparing the offers on Credible.

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How to negotiate medical bills

Negotiating medical bills is a tactic that patients can use to reduce the cost of care. You can get a reduction on your medical bills even if you don’t have a low income. Use these strategies when talking to a healthcare provider, medical billing advisor, or your insurance company:

* Put your documents in order. Request an Explanation of Benefits (EOB) and Summary of Benefits and Coverage (SBC) from your health insurer to understand how your coverage works.

* Check your invoice for errors. Common mistakes include double billing and incorrect coding. You may also have been billed for a service that was supposed to be covered by your health insurance.

* Contact the hospital billing department. You may be able to request a discount for the upfront payment. Take detailed notes on who you talk to and any deals you make.

* Do your research on the cost of care. Use a cost comparison tool like Healthcare Bluebook to find comparable rates for the care you’ve received to see if you’ve been overcharged by the healthcare provider.

* See if you are eligible for financial assistance. The Affordable Care Act requires nonprofit hospitals to offer financial assistance, such as interest-free payment plans and discounted care for low-income patients, according to the NCLC.

Even after negotiating your medical bills, you may still be in debt with a collection agency. If you think there was an error during the medical billing process that you cannot resolve, contact your state’s insurance commissioner.

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3 ways to pay off your medical debt

Some patients may be tempted to put their unpaid medical debt on a credit card. But incurring high interest rate credit card debt can be an expensive way to pay medical bills. Here are some other ways to get out of medical debt.

1. Join an interest-free payment plan

2. Take out a personal loan for debt consolidation

3. Use cash-out refinancing to pay off medical debt

1. Join an interest-free payment plan

Nonprofit hospitals are required by federal law to provide financial assistance to low-income patients, and often this assistance comes in the form of an interest-free payment plan. It’s a way to divide your medical debt into monthly payments so that you can spread the cost of care over time.

However, not all healthcare providers will offer this type of payment plan. For-profit health centers and elective procedures may not be covered by this law. But before you borrow money to get out of medical debt, ask your health care provider if an interest-free payment plan is an option.

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2. Take out a personal loan for debt consolidation

Taking out a small personal loan can be a way to finance elective medical procedures like dental care and cosmetic surgery. But you can also take out a personal loan to consolidate an existing medical debt.

Personal loans offer quick lump sum financing that is paid off in fixed monthly installments over a set period of time, usually a few years. You can use a personal loan calculator to estimate your monthly payments. They are usually unsecured, which means you don’t have to post any collateral to get the loan.

Personal loan interest rates vary widely depending on the amount and length of the loan, as well as your credit history. So, if you do decide to borrow a personal loan, it is important to verify your eligibility and compare offers from several lenders to make sure you get the lowest rate for your situation.

You can pre-qualify on Credible and compare personal loan rates tailored to your needs, all without impacting your credit score.

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3. Use cash-out refinancing to pay off medical debt

Mortgage rates are at historic lows while home equity is at an all time high, making it a great time to consolidate debt with a cash mortgage refinance.

Cash-out refinancing involves taking out a larger mortgage to pay off your current mortgage, capitalizing on the difference for money. It is commonly used for debt consolidation, which can include medical bills.

However, mortgage refinancing with withdrawal is not for everyone. For example, it might not be a good idea to take out a new mortgage that is worth more than the true value of your home. Plus, mortgage refinancing comes with closing costs that can offset the benefit of a lower rate.

Contact an experienced loan officer at Credible to see if refinancing for debt consolidation is right for you.

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Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.


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