Medical debt is a costly burden that weighs on millions of patients seeking lifesaving care – it’s the leading cause of bankruptcy in America and the biggest source of personal debt among consumers.
In order to support those facing unexpected hospital bills, Equifax, Experian and TransUnion will soon remove nearly 70% of medical debt in collections from credit reports.
“Medical collection debt often arises from unforeseen medical circumstances,” credit bureau executives said in a joint statement. “These changes are another step we are taking together to help people across the United States focus on their financial and personal well-being.”
Keep reading to learn about the agencies’ new policy on reporting medical debts, as well as how to pay unpaid hospital bills in collections. You can also sign up for Experian’s free credit monitoring services through Credible.
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Removing medical debt from reports can improve consumer credit scores
Starting in July, medical debts paid in collections will no longer be included in credit reports. And in the first half of 2023, credit bureaus will no longer include medical collection debts under $500 in credit reports.
The agencies are also increasing the time before unpaid medical bills appear on consumers’ credit history to one year, from six months previously. They predict that the combined measures will eliminate nearly 70% of existing commercial lines of medical debt.
The decision came shortly after the Consumer Financial Protection Bureau (CFPB) released a report finding that unpaid medical bills account for 58% of debt in collections.
“Even when a patient is trying to fight to get an accurate bill or insurance claim paid, medical debt collectors have a weapon that’s hard to fight against: the credit report,” said the director of the CFPB, Rohit Chopra.
While credit bureaus have effectively removed many types of medical bills from credit reports, millions of consumers still face collection debt. If these bills remain unpaid, they could potentially lead to negative impacts on the credit rating after a period of one year. Third-party debt collectors may eventually file a civil suit to recover costs, which may result in wage garnishment and attorney fees.
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How to Repay Medical Debt in Collections
Although some debts from medical collections will soon be removed from credit reports, consumers still owe the balance of their outstanding bills to past health care services. Here are some strategies for repaying medical debt in collections:
Learn more about each method in the sections below.
Patients may be able to pay their medical bills for less than they owe by negotiating with the collection agency that owns the debt. It may also be possible to sign up for an interest-free payment plan to spread your hospital bills into lower monthly installments. Here are a few CFPB trading tips:
- Ask the debt collector for a written opinion on the origin of the debt and the amount owed. You also need to know the age of the debt, so you can see if it is within your state‘s statute of limitations.
- Offer a realistic proposal for debt settlement or repayment. Calculate how much you can afford to pay each month or see if you have enough money to settle the debt in a smaller lump sum.
- Be honest about your situation, as you may have more leeway to ask for a discount if you have a long-term health condition or other financial burden. Take notes of your conversation with the creditor.
You can use a cost comparison tool like blue book on health to find the average price of the service you received in your area, which can be used as leverage while you negotiate your collection account balance. And if you’re unsure of your own negotiation skills, you might consider enlisting the help of a nonprofit credit counselor to speak with your creditors on your behalf.
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Use a 0% APR medical finance card or credit card
Some medical providers offer low-interest or interest-free financing options via a medical credit card like CareCredit. Keep in mind that these payment plans are usually offered by the original health care provider, not collection agents. They also usually come with a high purchase APR if you don’t meet the payment agreement.
Alternatively, you can consider opening a new credit card with a 0% APR purchase period. This can allow you to repay your medical expenses without paying interest for up to 21 months. It is important to note that these offers are generally reserved for candidates with very good or excellent credit, defined by the FICO model like 740 or higher.
You can visit Credible to compare credit cards with 0% APR introductory offers.
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Consolidate medical debt into a fixed rate personal loan
A common way to pay off a debt is to an unsecured personal loan that you repay in fixed monthly installments over a set period of months or years. Since personal loans have fixed interest rates, they may offer better repayment terms than variable rate credit cards.
Personal lenders determine interest rates and eligibility based on the borrower’s credit score. Applicants with excellent credit will be eligible for the lowest possible rates, while those with poor credit may not be eligible at all.
To see if you are a good candidate, you can be prequalified for a debt consolidation loan with a soft credit check. You can also browse the current interest rates in the table below and use Credible’s personal loan calculator to estimate your monthly payments.
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Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.