The number one reason Americans think about filing for bankruptcy or taking cash out of their retirement accounts isn’t credit card debt – it’s the high cost of their health care.

So if you’re struggling to pay off medical bills and collections, you obviously aren’t the only one.

How can you juggle taking care of your health and your finances at the same time?

One path toward medical debt relief is consolidation.

Know This: 

  • Medical debt consolidation helps you pay off everything you owe.
  • You will likely have to pay interest and/or fees.
  • The most common method is using a personal loan to pay the debt, but you could also enroll in a debt management program (DMP) if you also have credit card debt.

Table of Contents

Benefits of consolidating medical debt

Whichever consolidation method you choose, expect to start making monthly payments. Your credit score may fluctuate slightly in the beginning, but if you are consistent with your payments, there shouldn’t be any long-term damage. Consolidating will also help you:

  • Pay off the total amount owed
  • Keep collections accounts off your credit report
  • Get one monthly bill instead of multiple smaller bills

Questions to consider before taking the next step

medical debt consolidation; woman with broken leg looking at her medical bills

  • Do I need help, or do I want to do this on my own?
  • What assets would I consider using as collateral?
  • Am I concerned about protecting my credit score?
  • Will this actually get rid of my debt, or am I just delaying bankruptcy?
  • Have I researched other options?

What is debt consolidation?

[On-screen text] Understanding Your Credit: Medical Consolidation Loans

Narrator: You can take a personal loan to consolidate your medical debts.

[On-screen text] Medical Consolidation Loans: Personal loans you use to pay off your outstanding medical debts.

Narrator: This can prevent your bill from going to collections, or get it out of collections faster.

[On-screen text] A medical consolidation loan can…

  • Keep a medical bill from going to collections
  • Get a medical debt out of collections faster

Narrator: However, a personal loan can come with a high interest rate. If your medical debt is on your credit report, your score likely took a hit.

[On-screen text] Medical debt → Credit report → Lower credit score

Narrator: With a lower credit score, you may have a higher interest rate.

[On-screen text] Lower credit score → Higher interest rate on personal loan

Narrator: Experts recommend trying to set up a payment plan with your provider first. These plans usually have no interest. If that doesn’t work and you apply for a personal loan instead, here are three things to know. First, a loan will increase your costs.

[On-screen text] You will pay more than what you originally owed.

Narrator: A personal loan comes with interest charges. You will likely pay monthly instead of in a lump sum, but the total cost will be higher. You also need to know that your credit score may decrease.

[On-screen text] Your credit score may drop initially.

Narrator: Opening a new line of credit can lower your score. Don’t panic — after a few months of on-time payments, it will go back up. Finally, if you miss loan any payments, you could be looking at more credit damage.

[On-screen text] If you miss loan payments, you could hurt your credit even further.

Narrator: Make all of your payments on time to protect your credit score and prevent extra charges.

Debt consolidation is a process through which you combine all your debts and make only one monthly payment. With medical debt, you can do this in a couple of different ways:

Debt management program (DMP)

If you also have credit card debt, you can work with credit counselors to enroll in a DMP. The counseling agency lowers your payments and you make one monthly payment directly to the agency. You still technically pay back everything you owe, so your credit score won’t be damaged.

Debt consolidation loan

This is a personal loan you use to pay off all your debt at once. Then you just make payments on the loan instead of worrying about tons of monthly bills. When done right, this should not damage your credit score.

In the end, the interest on the personal loan means this method will cost you more than the original medical expenses. So, what’s the point? It can pay off medical bills and existing collection accounts quickly, to minimize the damage to your credit.

How does a debt management program work for medical debt?

To enroll in a debt management program (DMP), you must first contact a credit counseling agency. There are both for-profit and nonprofit agencies.

Because counselors at nonprofits don’t make a commission, you can trust that they have your best interest in mind. When you talk to a counselor, they will determine if you meet the qualifications for a debt management program.

You cannot enroll in a debt management program solely for medical debt. You must enroll primarily for credit card debt to qualify. However, medical collections may be included if the collectors agree to allow them.

Once you enroll, you make monthly payments directly to the credit counseling agency. It usually takes 36-60 payments to get out of debt, which means you will pay off everything you owe in 3-5 years.

How do I use a consolidation loan for my medical debt?

medical debt consolidation; file folders with past due medical bills“Getting a personal loan depends very much on the situation because you don’t want to just keep digging a deeper hole,” says Gerri Detweiler, credit expert and Debt.com contributor. “So if it prevents the medical bill from going to collections and you were planning on paying it anyway, then it could be a valid approach.”

A consolidation loan allows you to pay off the bills (or debt in collections) in a lump sum to avoid the hassle of setting up repayment plans with individual medical providers. Make sure you send in your payments on time every month to avoid credit score damage.

What to expect when consolidating medical debt

The method you choose depends on your credit score, your monthly cash flow, and your amount of debt. Use this table to compare:

Medical debt consolidation: DMP vs. consolidation loan

Medical debt relief through a DMP Medical debt relief through a debt consolidation loan
Do-It-Yourself No Yes
Interest charges No Yes
Damages your credit No negative credit report remarks when done correctly; may decrease credit score No negative remarks or decreases in credit score when done correctly
Must also have credit card debt Yes No

Can’t decide which medical debt consolidation method is best for you? The professionals at Debt.com can help.

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Do-It-Yourself

You must work with a credit counseling agency to enroll in a debt management program. If you have credit card debt to enroll for, plus a large amount of medical debt collections that you need help paying off, this could be the right solution for you.

With a smaller amount of medical debt, the DIY consolidation loan method could work — as long as you can afford to always make the monthly payments on time and you don’t mind the extra cost. This can also work for medical bills that are still with the original medical service provider, which helps you avoid collections entirely.

Interest charges

There are some fees associated with DMP and reduced APR will be applied to your credit card balances. However, no interest charges will be applied to the medical collections you include. A debt consolidation loan, on the other hand, comes with the interest rate you qualify for.

If you have a poor credit score, you may get a high interest rate or be rejected from the loan altogether. Or, you could use some of your assets as collateral to apply for a secured loan instead of an unsecured loan.

Damages your credit

Neither a DMP nor a consolidation loan should damage your credit; consolidation does not create any negative remarks in your credit report. However, if you miss payments on either solution, it can start hurting your score. In addition, the debt management program will close the credit cards you include in the program. This can decrease your score slightly.

Must also have credit card debt

Your primary reason for enrolling in a DMP must be credit card debt. You can’t enroll if you only have medical debt. This is not the case for a medical debt consolidation loan — you can take out a personal loan and use it for anything, regardless of what you are paying off.

Making the right choice

The best path to medical debt relief is the one that leaves you in the best financial place after you pay it off. In some cases, this may be a medical debt consolidation loan or a debt management program.

However, if you feel like your situation is different than the ones presented here, a different option may better suit your needs. Explore bankruptcy and medical debt settlement.

Need professional help to solve your medical debt problem? Call for a free consultation.

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Article last modified on June 5, 2020. Published by Debt.com, LLC

contributors

Gerri Detweiler

Expert contributor