Ultimate Guide to Consolidating Medical Bills

If you have medical bills, you may be struggling with how you’re going to pay them. Trying to keep up with multiple bills from different providers may be very stressful. Consolidating all your medical debt into one loan could be an option to explore.

However, there are pros and cons to consolidating medical debt, and you may want to consider them carefully before making a decision. Read on to learn about medical debt consolidation.

What Is Medical Debt Consolidation?

Medical debt consolidation is a type of debt consolidation that is specifically for medical bills. Debt consolidation is when you take multiple loans and refinance them into one new loan with a new lender. If you are consolidating medical debt, you may obtain a new loan for the total amount of medical debt you owe. You may then make one payment to one lender instead of several payments to different providers. 

How Does Medical Debt Consolidation Work?

Medical debt consolidation involves taking out a new loan or line of credit to pay down your existing debt. That new loan or line of credit pays down the existing debt, and then you pay it down in one installment each month over time. 

When consolidating debt, you typically want a new loan to have a lower interest rate than your existing debts have. However, many types of medical debt don’t accrue interest at all or have low interest rates. If that’s the case, you could compare the average personal loan interest rate with your existing interest rates to explore whether consolidating medical debt makes sense for you. 

If you paid a medical bill with a credit card or loan, however, you may have interest on your medical debt. In that case, it might save you money to consolidate your medical bills. Consolidation may also simplify your payments, which could be helpful to you. 

Average Medical Bill Debt

If you have medical debt, you are not alone. Approximately 4 in 10 U.S. adults (41%) have debt due to medical or dental bills, according to the most recent data available from KFF (formerly known as the Kaiser Family Foundation).

Consolidating Your Medical Bills

If you have medical debt, you may first seek assistance through your medical provider and insurer. However, if they are unable to help, you may want to consider consolidating your medical bills. 

To consolidate your medical bills, you may look into options including balance transfer credit cards, personal loans, or secured loans or lines of credit. Banks, credit unions, online lenders, and nonprofit credit counseling agencies could be some good options for medical debt consolidation. 

Benefits of Medical Bill Consolidation

Consolidating your medical bills could simplify your monthly payments so that you make one payment to one lender instead of multiple payments to multiple providers. Consolidating medical bills might be beneficial for your credit if you are better able to make the payments on your debt. 

Risks of Medical Bill Consolidation

It’s important to understand that medical bills receive certain credit protections, including a one-year grace period before eligible unpaid medical debt is reported to the credit bureaus. Consolidating medical bills means that they no longer receive these protections.

Before deciding whether to consolidate medical bills, it is important to weigh the risks and benefits of medical bill consolidation.

Medical Bill Consolidation Effect on Your Credit

As mentioned, if you’re on a payment plan from your health care provider for your medical bill, that debt may not be reported on your credit report. The major consumer credit bureaus do not include eligible medical collection accounts on your credit reports until the account is at least 365 days past due. 

However, if you don't pay your medical bills, then the account may be sent or sold to a collection agency, and that agency could report your unpaid debt to the credit bureaus. In this case, your medical debt would show up on your credit report, and it could stay on your credit report for up to seven years from when your account first went past due. If your insurance company pays the bill, the credit bureau may remove the medical collection accounts from your credit reports.

Even if medical collection accounts do show up on your credit, it’s possible they may have a lesser effect on certain credit scores than other types of collection accounts. Some credit-scoring models may even ignore paid medical collections entirely when determining your credit score.

Options for Consolidating Medical Bills

There are a few options for consolidating your medical bills. These include balance transfer credit cards, personal loans, and home equity loans or lines of credit. 

Balance Transfer Credit Cards

Balance transfer credit cards may be an option for consolidating medical bills if you originally paid your medical bills with a credit card. Many credit cards charge a balance transfer fee, but it might still be worth the cost if you would be saving money overall. 

Balance transfer credit cards frequently offer introductory periods with no interest on balances transferred from other credit cards. During the introductory period, you could make progress on paying off existing debt without having to worry about accruing additional interest.

Personal Loans

A personal loan is a type of loan that may be used for a variety of purposes, including consolidating other existing debts. With a personal loan, you borrow money from a bank, credit union, or online lender and pay it back monthly over time with interest. 

If you are thinking about using a personal loan to consolidate your debt, you could compare the interest rate of the personal loan with the interest rate of your existing medical debt. You could also consider the pros and cons to personal loans. Personal loans may offer flexibility and ease of consolidating debt, but they could come with additional fees and penalties. 

Home Equity Loan or Line of Credit

A home equity loan or home equity line of credit (HELOC), in which you borrow against the equity you have in your home, may also be options for medical debt consolidation. Because your home is the collateral, these loans may offer lower interest rates and higher loan amounts than unsecured personal loans. However, if you fail to repay the loan, you risk losing your home. 

Alternatives to Consolidating Your Medical Bills

If you didn't originally pay your medical bills with a credit card or a loan, consolidating medical bills may not be the right option for you. Medical bills often have low interest rates, and providers may even help you find manageable payment plans. If you consolidate your bills, you may end up with higher interest rates or higher monthly payments. 

If you are unable to pay your medical bills, there are other options you could turn to, such as negotiation, credit counseling, or bankruptcy.

Negotiate With Creditors

Your creditors may work with you to negotiate a different repayment plan or lower your outstanding balance. If you are looking at settling a small amount of debt, negotiation might be an option to consider. In addition, there are nonprofits that offer complimentary medical bill advocacy services.

Credit Counseling

Nonprofit credit counseling agencies may offer debt management plans. Debt management plans function like debt consolidation, where you make one monthly payment to the agency, and the agency then pays your creditors directly. The agency may even be able to negotiate fee waivers and lower interest rates on your behalf.

Bankruptcy

If you have looked at all other options and none of them work for you, you could explore filing for medical bankruptcy. Deciding whether to move forward with settling debt or bankruptcy depends on your amount of debt, credit, and other factors. Filing for bankruptcy won’t help cover future expenses, so it may be used for past bills you know you are unable to pay off. However, bankruptcy may have a serious and long-lasting effect on your credit, which may affect your ability to buy a home, rent an apartment, or buy a car for up to 10 years. So, consider this option carefully.

Determining if Medical Debt Consolidation Is Right for You

When determining whether medical debt consolidation is right for you, consider your circumstances carefully. Look at the amount and type of medical debt you have, the terms and conditions, the interest rates, and special protections that may be in place that you could risk losing if you consolidate your debt. Consider all factors to make sure that consolidating medical debt makes sense for you.

The Takeaway

Choosing whether to consolidate medical debt is a big decision, and all options need to be thoroughly weighed to explore if debt consolidation could help you. 

If you do decide to consolidate your medical debt, Lantern by SoFi can help make the process easier. You can compare personal loan options from multiple lenders in our marketplace to find the best rate and terms for you. 

Compare personal loans for debt consolidation with Lantern.