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Paying Medical Bills With A Credit Card. Is It Worth It?

Many unfortunate American families are turning to borrow money in order to pay for their medical care, which is leading to a higher incidence in bankruptcy. Credit cards are a quick solution for solving a payment, however, in the long term, could destroy the lives of many people if this debt is not paid in full. A recent study showed that close to two out of three Americans would be at risk for financial hardship should a serious medical illness arise.

The results of this recent study show that despite having health insurance, Americans still face financial hardship due to not expecting a medical emergency. Unfortunately, these people do not realize their tenuous situation, until it is too late, and their medical debt has piled high.  Additionally, the majority of those who end up in a hospital do not realize until it is too late, and they are already in a medical situation, as well as in need of medical help, that they cannot afford the bills. The study continued to highlight that nearly half of all personal bankruptcies filed in 2001, resulted from medical debt.

Employee Sponsored Medical Insurance

Costs not covered by health insurance, also known as out of pocket health care costs, have been increasingly rising over the last few years. Medical debt experts attribute this increase in debt to the fact that consumers are being deceived into a misleading sense of security by their employers for signing up with employer-sponsored medical insurance. With this coverage, gradually, consumers pay a larger pay of the cost, which in turn may mean higher co-payments at doctor’s visits, hospital visits, premiums, and/ or deductibles.

So what does all of this mean for American families? Recently, credit card companies have increased efforts in their marketing campaigns to offer financing methods for families in need to pay off medical debts. Special offers from these credit card companies, such as gift cards, installment loans, low interest rates, and health care debit cards have been offered to those who are cash-strapped and in debt.  The study, as mentioned in the beginning of the article, found that approximately 38% of those interviewed stated that, if in need to pay for medical debt, they would resort to use of an installment payment plan, a credit card, a short-term loan from a bank, or withdrawing money from their retirement account. Startling figures showed that only 3% of those interviewed said that their health insurance would cover the medical expense. Furthermore, when asked if they knew what was covered under their medical insurance, 40% stated that they were not sure of what was covered and were not even sure if they had a deductible. In conclusion, the naïve nature of Americans, in relation to their health coverage, is shocking and could be a reason why medical debts are on the rise. Knowing the basic information regarding health coverage could reduce medical spending for uncertain situations.   

Healthcare Credit Cards

An example of a health care credit/debit card has been launched by Visa, where it can be obtained only through an employer-sponsored health plan, provides zero percent interest for expenses related to health care; however, this card requires borrowers to pay off their charges within 6 months. This should be a last resort for families with large medical debt, due to this card, being like a “typical” credit card, where the company can easily increase the interest rates, as well as other schemes found in the credit card industry. Additionally, these “easy credit” terms and short time spans to repay the loan, may not be the appropriate answer for families with large debts, thus, causing them to default and resulting in collection agencies requesting payments and damaging credit.  The market has created ways to “fool” the consumer into thinking that they have a right to credit cards to pay off their debts, but when it is not paid off by their terms, these consumers become in more trouble than they were before agreeing to a credit card for medical debt, leading to a large source of revenue for banks and other financial institutions looking to profit off of those who are financially strapped.

Bankruptcy from Medical Debt

In 2005, Harvard University conducted a study examining medical related bankruptcy. It was concluded that three out of four individuals filing for bankruptcy, due to medical reasons, all had health insurance prior to notification of their illness. Many families pay a monthly payment in health insurance premiums, have no deductibles on a policy, but accumulate thousands of dollars in out-of-pocket expenses related to co-pays and prescription drugs. It is very common for Americans who are strapped for cash to put payments for additional needs, that are not covered by their medical insurance, on credit cards, particularly those that may have a high interest rates. Additionally, it is common for these consumers to request cash advances on their credit cards, cash in equity in their home, and get a second mortgage. These “quick fixes” of paying off medical debt via credit cards, lead poor unaware individuals into a harder financial situation. Having more debt than money being brought into a family, can easily lead into bankruptcy.

Saving for a Rainy Day

A sudden illness and the medical expenses that may accrue, unfortunately, cannot be avoided. It is recommended, by financial planners, that families invest in short-term disability coverage, which would pay a portion of your salary while you are out of work for a sickness.  Similar to short-term disability, having a cancer plan that would cover transportation to and from treatments, as well as hospital-based plans that protect against in- and out-patient procedures and testing, could also save money in the long term.  Many suggest having three months savings in the bank account in case of a job loss or medical emergency. 

Solutions

If avoiding placing medical debt on a credit card is not an option, it is recommended that consumers limit the time limits that the debt is placed on the card. Do some research into other credit cards that offer “0% balance transfers” or “0% interest rates” to assist in paying down the credit card. Additionally, saving money and placing it in high yield savings account can assist in tackling medical debt. Bottom line: if one can avoid using a credit card to pay for medical related expenses, this will help in preventing further debt over time. If you need medical debt relief, contact us for a free consultation by using the menu link above.