Debt consolidation involves using a new credit account to pay off multiple outstanding debts. That effectively rolls over your old balances to the new credit line, saving you from juggling monthly payments and hopefully improving your financing terms.

Consolidation is an effective form of debt relief for many consumers, but it’s usually a mistake to consolidate medical debt. Medical debts are subject to unique rules that benefit consumers, and refinancing them into a new debt removes those protections.

Here’s what you should know if you’re considering medical debt consolidation, including why it’s typically worth preserving your debt’s status as medical debt and some alternative ways to get financial relief.

🛑 Required Reading: What Is Debt Consolidation and How to Consolidate Debts

Why You Shouldn’t Consolidate Medical Debt

Medical debt has advantages over other forms of consumer debt that typically make consolidating it inadvisable. Most notably, medical debts usually don’t accrue interest, while any loan or credit card you use to consolidate will.

Even if your medical debt does carry a financing charge, state regulations often limit your interest rate. For example, Arizona’s Proposition 209 caps the annual interest rate on medical debt at 3%. Colorado’s current limit is 8%, but the proposed Senate Bill 23-093 would reduce it to match Arizona’s.

As medical debt issues gain attention, consumer protections will likely increase. Recently, Senators Chris Murphy and Chris Van Hollen reintroduced The Strengthening Consumer Protections and Medical Debt Transparency Act, which would implement a national 5% annual interest rate cap on medical debts.

In addition to these kinds of financial protections, medical debts are less damaging to your credit score. Healthcare providers rarely report them to the credit bureaus, so they usually don’t appear on your credit report until they go to collections.

👉 Even if they do, the three major credit bureaus announced the following new policies for medical debts in 2022:

  • Unpaid medical debts must be in collections for 12 months before they appear on your credit report.
  • Once paid, medical bills fall off your credit report and stop hurting your score immediately.
  • Starting July 2023, unpaid medical bills under $500 no longer appear on your credit report, even if reported.

Ultimately, it’s easier to manage medical debts in their original form due to the financial and credit-related protections they offer.

You still might benefit from consolidation if you have multiple other debts, but it’s probably best to leave your medical bills out of the transaction.

📗 Learn More: Can Medical Bills Affect Your Credit Score?

Is It Ever a Good Idea to Consolidate Medical Debt?

Most personal finance rules have their exceptions, and there may be situations where it’s beneficial to consolidate medical debt. For example, you might want to consider it if your collection agency is threatening to sue, especially if you have the credit score to get a low interest rate on a loan or qualify for a 0% interest balance-transfer credit card.

If you’re still unsure whether you’d be a good candidate for medical debt consolidation, consider contacting a reputable credit counselor. They’re experts in consumer credit and financial management who can help you navigate the complexities of your situation.

Alternatives to Medical Debt Consolidation

Consolidation might not be the right solution to your medical debt, but that doesn’t mean there aren’t ways for you to get financial relief. If you’re one of the millions of Americans struggling due to medical bills, here are some alternatives you should consider.

Negotiate With Your Healthcare Provider

Negotiating with traditional creditors and debt collectors to settle your debts for less than you owe is possible, but it’s usually an uphill battle. In contrast, medical providers are used to negotiating with patients and often more willing to come to arrangements.

If you’ve received a medical bill that’s financially burdensome, here are some steps you can take to reduce your balance:

  • Check your bill for accuracy: Inaccurate billing is rampant in the healthcare industry and can cost you thousands of dollars. Request an itemized bill, and check that it contains only the products and services you received. Watch out for duplicate charges and compare the prices to the market rates in the Healthcare Bluebook. Call your provider and request a new bill if you see any errors.
  • Ask for a reduced fee: Healthcare costs are more flexible than you might think, so it’s always worth pushing for a lower bill. One highly effective tactic is to ask about your provider’s financial assistance program. These are required for non-profits and may provide better rates for people who have lower incomes or are experiencing financial hardship.
  • Request a payment plan: Whether or not you can negotiate a lower price, getting more time to pay your bill is also a great way to make your medical debt more affordable. Since it doesn’t cost your healthcare provider money, they may be more likely to agree to a payment plan than a rate reduction.

For care received after January 1, 2022, you may have extra protections through the No Surprises Act. For example, it gives you the right to dispute any medical bill for up to 120 days if your final charges are at least $400 higher than your good faith estimate.

📗 Learn More: How to Negotiate a Medical Bill: A Step-By-Step Guide

Get Assistance From a Third Party

Negotiating with your healthcare providers to lower your medical bills can significantly lessen your financial burden, and it’s always worth trying. However, there’s no guarantee you’ll be able to reduce your charges to an affordable amount.

If you’re still struggling to pay your debts after repeated attempts to negotiate, consider asking a third party for assistance. There are many government agencies and non-profit organizations dedicated to helping people with their medical bills.

For example, RIP Medical Debt helps people in need get their medical debts forgiven, including the elderly, veterans, and low-income households. The organization purchases your medical debt from healthcare providers at a discount, like a debt collector, then forgives the amount, effectively erasing your bill.

In addition to financial aid, some organizations connect you with a medical bill advocate who can negotiate with your healthcare providers on your behalf. For example, the Patient Advocate Foundation is a non-profit that helps people with serious health conditions get discounts or set up payment plans.

📗 Learn More: 17 Ways to Get Help Paying Medical Bills in 2023

Take Control of Your Medical Debt

It can be tempting to ignore the threat of your medical debt, especially if you’re already struggling with a health emergency. Unfortunately, neglecting the problem can only make it worse. The longer you wait to confront the issue, the harder it becomes to negotiate or get outside assistance.

Eventually, your bill will go to collections, and you’ll have to worry about debt collectors reporting, harassing, or suing you on top of everything else. Even though it’s anxiety-producing, you must take control of your medical debt as soon as possible. 

Contact your healthcare provider and start negotiating your bills or contact a patient assistance organization for counseling and financial aid.

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