Options When You Must Pay for Medical Care

Obtaining quality medical care sometimes comes with a high price that you must pay.

Whether for an elective procedure such as cosmetic, bariatric or laser eye surgery, or medically necessary surgery that is out-of-network or exceeds your coverage limit, you may face thousands of dollars of medical debt.

Although the thought of coming up with a pile of cash to pay off medical bills may seem daunting, you have choices when it comes to financing medical debt. Theres no need for you to postpone or refuse important medical care because of high costs. Here are a few financing options to consider:

Medical Loan  

A medical loan is a personal loan you apply toward healthcare expenses. You can consolidate your existing medical debt or to cover an emergency or planned procedure or pay for charges your insurance doesnt cover.

Here are key factors to consider in shopping for a medical loan:

  • Annual percentage rate. This is the true cost of borrowing, including interest and fees. Rates can range from 6 percent to as high as 36 percent. Excellent credit will help you qualify for the lowest rates.
  • Fixed or variable rates. The rate of your loan can be fixed with interest costs and payment remaining the same throughout the duration of your loan, or variable, with costs and payments rising or falling depending on market rates. Greater peace of mind comes with a fixed rate, so you know for certain the monthly payments youll face.
  • Origination fee. Some lenders charge a one-time fee to cover their costs for initiating the loan. A typical fee is from 1 percent to 6 percent.
  • Long or short-term loan. The repayment period of your loan affects your monthly payments. Much like a home mortgage, a long repayment period results in lower monthly payments, but youll pay more total interest over the life of the loan. A shorter repayment period will hike your monthly payments, but result in settling your debt in full much faster.

In-Office Financing

Some medical professionals are willing to work directly with patients to settle a medical debt. The terms are usually short, as in three months. If dividing your out-of-pocket payments into three chunks works with your budget, this may be an option for you.

Some physicians and medical offices will give you such an agreement interest-free. If youre sure you wont default on the direct loan, this financing method may work. If you dont meet the terms, however, your debt will be turned over to a collection agency and you dont want that to happen.  

Consult with your medical provider before your procedure to reach a payment agreement in the form of a legal contract.

Existing Credit

If you have a card that has room for a major credit charge, paying for a medical procedure with an existing card is a quick and easy way to cover your debt. If your card has a high interest rate, be sure you can cover your monthly payments with the increase in your balance owed.

Keep in mind a down side to maxing out a credit on a card or using multiple cards is a big hit to your credit score, as your credit utilization counts for 30 percent of your total score.

Interest-free Credit Card

If your credit history is solid, you may qualify for a card with a zero percent interest rate. Before you jump at this option, very carefully read the fine print. The zero percent rate is an incentive, of course, and it lasts for a limited amount of time.

Be sure you can pay off your medical debt balance during the zero-interest period.

New Mortgage or a Home Equity Loan

If you have substantial equity in your home and a good credit score, you may consider refinancing your home and taking cash out to cover your medical costs. This may be especially attractive if you can also lower your mortgage interest rate in the process.

You may consider a home equity loan, which is a separate loan taken out against the equity in your home. Interest rates are generally higher than your primary mortgage rate, but more reasonable than credit card rates.

Borrowing from a 401(k)

Most retirement plans allow you to borrow up to 50 percent of the vested balance in your account, up to a $50,000 maximum. Repayments would be automatically deducted from your paycheck for five years. This approach gives you quick access to cash and does not affect your credit score. Also, youll be paying interest back to yourself instead of to a lender or credit card company.

The down side of taking money out of your 401(k) is that if you leave your job, you must pay the loan back within 60 days or youll be penalized for an early cash withdrawal if you are not retirement age. And while this cash is not in your 401(K), you wont earn interest on it.

Its a given that quality medical care comes with a high cost thats worth paying, but that may affect your cash flow for months or years to come. However, finding the right medical financing and paying off your debt in a timely manner can help you better manage your life.

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