New rules in credit reporting protect consumers from credit damage once they have a medical bill sent to collections.

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Question: I was recently informed by a debt collection agency that my bill from a clinic was forwarded on to them by the clinic. It is for $4,300, which I can’t afford to pay right now. Will my credit standing suffer if I set up a payment plan with the debt collector? Is it better to put it on a credit card? I have been thinking of consolidating all of my credit card debt and medical debt too if possible – who is reputable? Thanks for your help. Steph L.

Gerri Detweiler, Credit Expert, responds…

Hi Steph,

It sounds like there are several issues you are grappling with:

  1. You have found out a medical bill you owe has gone to collections and you can’t afford to pay it.
  2. You are concerned about maintaining your credit rating.
  3. You have additional debt you are struggling to repay.

Let’s take a look at each of these issues so you can try to make an informed decision about your next steps.

Medical debt in collections

Medical debts in collections are responsible for over half of all collection accounts on credit reports, so you’re certainly not alone in your concerns about how to pay this debt. Prior to your medical bill being turned over to collections did you make any attempts to work something out with the clinic, such as requesting a reduction in the balance and/or a payment plan? If not, you may want to at least make an attempt to do that first.

Contact the original provider and ask if they can pull it back from collections so you can resolve the bill with them directly. The advantage of this approach is that there will no longer be a risk that it will be listed on your credit reports as a collection account, which is considered quite negative. You may also be able to work out an interest-free payment plan directly with the provider.

Using a credit card for medical bills

If you can’t work out a payment plan with the original service provider, then you may want to charge the full amount to a credit card. This would help you avoid potentially damaging your credit with the collection account.

New rules in credit reporting give you more time to deal with medical debt so it doesn’t negatively affect your score. But credit damage is still possible. If you don’t take care of the collection account within 180 days, then the collection agency may report it to the credit bureaus. Then it could negatively affect your score.

If you decide to go this route, work directly with the original service provider, if possible. However, only consider using a credit card to pay the bill if you are confident you can pay back the credit card debt in a reasonable period of time. Otherwise, you’ll take an already unaffordable debt and make it more expensive through additional interest charges.

This strategy is a bit of a long shot since the debt has already been turned over to a collection agency, but it’s worth a try.

Free help to evaluate your options is available here. Find the best way to get out of debt for your needs, budget, and goals.

Find Relief Today

Options for relief if you have to go through the collection agency

If that doesn’t work, you’ll have no choice but to communicate directly with the collection agency. You will have several options at that point:

Option No. 1: Pay off the collection account with a credit card

First, offer to pay off the bill in full right away using a credit card. This may make sense if you get written assurance from the collection agency that it has not reported the debt to the credit reporting agencies, and will not report it if you pay it off right away. If you pay the debt over time, you’ll pay interest, so you need to take that additional cost into account.

Option No. 2: Set up a payment arrangement with the collection agency

Setting up a payment plan won’t necessarily prevent the collection account from appearing your credit reports, but it might. A few major collection agencies will not report collection accounts if the borrower enters into a repayment plan soon after being contacted about the debt and subsequently pays on time.

If you attempt to go this route, make sure the collector clearly states its credit reporting policy in writing. It should also provide you with a written description of any fees or interest that will be added to the debt. Compare what they will charge to the cost of paying with a credit card.

Option No. 3: Settle the debt with the collection agency.

You may be able to negotiate a reduced payoff amount for the debt. There’s a good chance the collection agency has either purchased the debt for less than the full amount or is collecting on behalf of the medical provider. Either case would give them some flexibility to accept a lesser amount. This will likely result in a collection account on your credit, but once you’ve resolved it you should be able to at least get the balance updated to show it’s been paid.

If you’re thinking of consolidating, start with a phone call…

You indicated that you are thinking of debt consolidation because you have other debts. If that’s the case, your first call – even before you contact the medical provider or collection agency – should be to a reputable credit counseling agency. The counselor can help you review your debts and budget, so you can evaluate how this debt fits into your overall financial situation.

If you discover, for example, that you can’t pay back your debt with the help of the counseling agency in five years or less, you may need to consider debt settlement or even bankruptcy. While those options may hurt your credit in the short term, they could allow you to put your debts behind you, so you are then free to start rebuilding your credit and reaching your financial goals. If you’re still not sure which option is right for you, call and will match you with the right solution, based on your needs, credit, and budget.

GoodRx, Pharmacy

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About the Author

Gerri Detweiler

Gerri Detweiler

Gerri Detweiler has been helping consumers find answers to credit questions for two decades. As a noted expert on credit issues, she has appeared on The Today Show and Dateline NBC as well as given advice to The New York Times, USA Today and Reader's Digest.

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