Health care and medical costs are the leading causes of bankruptcy in the United States and the most common form of collection that appears on an individual’s credit report. Recent reports reveal that 17.8%-35% of Americans have accrued medical debt.
Medical collections are often split up into multiple bills ranging from $300-$700 on average. With 61% of Americans living paycheck to paycheck, these debt obligations can quickly become unmanageable.
Continually failing to make on-time medical payments could cause you to fall into a deeper rut because you might find it hard to buy or rent a home and secure a stable job. If you want to avoid bankruptcy, you might be eligible for another form of debt relief. That is, medical debt consolidation.
Medical debt consolidation is a lot like normal debt consolidation. It involves acquiring one loan to pay off all your debt. If you’re struggling with medical debt, this benefits you because you most likely have multiple bills from several creditors. Although these medical bills don’t accrue interest, keeping track of what you owe could be challenging.
With a consolidation loan, you can make one payment to one creditor each month under one interest rate. This simplifies the payment process and allows you to build your credit.
You might choose one of the following ways to consolidate your medical debt:
An excellent first step to consolidating your medical debt is recruiting the help of a credit counselor. Credit counselors can create a budget and provide resources to further educate you on basic financial principles. A credit counselor can also enroll you in a debt management program to consolidate your debt. You must do your research to find an accredited counseling agency.
These programs assist you by organizing your debt and creating a timeframe to pay it off. Like many debt consolidation plans, you can make one payment for all your debt obligations. This is beneficial to someone who can manage to make payments on time.
So, you’ll have to maintain some level of income for a debt management program to work. Consider another form of debt relief if you’re barely keeping your head above water.
While this may seem counterproductive, acquiring a personal loan to pay off your debt could be beneficial, depending on your situation. This method allows you to pay all your medical debts with one loan rather than making several different payments. However, the only drawback is that your payments will now include interest. That’s why obtaining a loan with the lowest interest rate would be wise.
A home equity loan allows you to use the equity in your home to pay off your medical debt. Your home’s equity is determined by how much your home is worth and how much you owe. If your home is worth $300,000 and you owe $200,000, your home’s equity is $100,000.
You can use that $100,000 to pay off some of your medical debt. However, this is risky because you’re essentially betting against your home. If you don’t repay the borrowed money, the bank could foreclose on your home.
You’ll be glad to hear that medical debt differs from other consumer debt because it doesn’t appear on a credit report for 12 months. If you’re in medical debt, you should take advantage of this time by creating a debt consolidation plan.
In addition to the 12-month grace period, medical debt receives other forms of special treatment. For example, if an insurance company is in the process of paying the debt, the credit bureau will remove your medical collection account from your report. Medical debt also tends to have less of an impact on your credit score compared to other forms of debt.
Although medical debt is treated differently compared to other forms of debt, that all changes once it’s consolidated. With a consolidated loan, you no longer have the 12-month grace period and are now responsible for paying interest. That makes it extremely important for you to make consistent, on-time payments. Over time, you can build your credit with a healthy payment history.
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