What does medical debt really cost here in the US. It’s probably a lot more than you might have imagined. Spend a few minutes with the Infographic shown below and you may be shocked at what you learn. For example, would you have guessed that people who have insurance still had an average of $17,749 in medical debts. As you might guess, it’s even worse for people without insurance as they had an average of $26,971 in medical debts. And those who did not have insurance during their illness had an average of $33,568 in medical debts.
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Study the Infographic shown here and you’ll find some other shocking statistics. For example, it shows that the leading causes of medical debts are hospital costs (48%), followed by prescription drugs (18.6%) and doctor’s bills (15.1%).
The really tragic statistic
But the really tragic statistic is that 1.7 million of us will be forced into bankruptcy as a result of medical debts. In fact, medical debt has become the number one reason why people file for bankruptcy. Plus, about 11 million Americans will be forced to burden themselves with credit card debts in order to pay their healthcare costs.
What if it’s you?
What if you or someone in your family had a stroke, or a heart attack or developed diabetes or needed a kidney transplant? As you can see from the Infographic, even if you have healthcare insurance as a result of the Affordable Care Act (Obamacare), you could still end up owing $17,000 or more. How would you handle this?
Use credit cards
There are four reasonably good ways to handle big medical debts and one that’s not so good. The first good option is to do as other people have done and pay it off with your credit cards. This would allow you to spread out your payments over months or even years. But this would come at a price as credit cards usually have high interest rates. You could end up having to pay as much as 19% or more in interest charges, which could keep you slaving away to pay off those medical debts for years and years.
Get a debt consolidation loan
A second good option is to get a loan and pay off those debts. If you got a secured loan, you might be able to an interest rate as low as 5%. Your monthly payments would be dramatically lower than if you were to use credit cards to pay off those debts and you would have much more time to pay off the loan. As an example of this, if you were to get a home equity line of credit to pay off your medical debts, you would have 10 to 15 years to pay off the loan.
Negotiate with your providers
Third, you might be able to negotiate a payment plan with your hospital, doctor or clinic. This can be a very good option because some hospitals offer very good terms, such as very low interest charges.
Use a debt settlement company
An option that has become increasingly popular over the past several years is to hire a debt settlement company to negotiate with your healthcare providers to get your debts reduced. The best of these companies are usually able to get medical debts reduced by a large percentage. They charge no fees upfront. In fact, their clients pay nothing until all their debts have been settled and they are presented with a payment plan they approve. In most cases, the people who use debt settlement companies are able to become debt free in 24 to 48 months.
File for bankruptcy
We’ve already mentioned bankruptcy as an option for getting rid off medical debts and the fact that these debts are now the number one reason why people file chapter 7 bankruptcies. It’s true that a bankruptcy will eliminate all medical debts as well as unsecured debts such as credit card debts, personal loans and personal lines of credit. However, not even a bankruptcy can eliminate student loan debts, alimony or child support payments.
The not-so-good option
Of these five options, filing for bankruptcy is the not-so-good one because of what it would do to your credit. For one thing, it would make it very difficult for you to get any new credit for two to three years. If you were able to get credit, it could come with an interest rate of 22% or higher. If you could get a new mortgage, your interest rate would probably be four to five points higher than the normal rate, which would cost you literally thousands of dollars extra over the life of the loan. You would have to give up all your credit cards and wouldn’t be able to get an auto loan that had a decent interest rate. A bankruptcy will stay in your credit reports for either seven or 10 years and in your public record for the rest of your life. You would probably also be charged more for your auto insurance because most insurance companies now factor in your credit score when calculating your premiums.
The one thing not to do about medical debts
The one thing you don’t want to do when it comes to medical debts is ignore them. Many hospitals, clinics and even doctors now turn over past due bills to debt collection agencies. You could end up being harassed unmercifully or even sued. And if the collector took you to court and won, you could end up with a lien on your house, which is never a good thing.