Home > Personal Finance > 10 Credit Options to Help Manage Health Care Costs

Comments 0 Comments

With the rising cost of healthcare and medical procedures, most Americans are painfully aware of how quickly medical bills can mount. Whether you’re in need of costly medical tests or procedures, or you’re looking into an elective procedure, the financial impact can be enough to deter you from taking care of your medical needs. The impact of unpaid medical debt on credit can be potentially devastating.

Understanding some of the financing options available to help shoulder the burden of these costs can be the difference between taking action on your health and delaying your important medical care. It can also be the difference between protecting your credit scores and damaging them. That’s why it’s important to be smart and selective about the options you consider when it comes to financing medical costs. Let’s take a look at some of the best and worst options to consider when using credit to help manage health care and medical costs.

In-office financing.

While not all medical professionals offer this option, many will work with patients by allowing payments to be made on an account as long as the balance is settled in a reasonable amount of time (usually no more than three months). Even having the ability to split a balance up into two or three payments can provide some much-needed relief in your budget, and many doctors will give you this option interest free. The danger with this arrangement, of course, is that if you should default or become unable to pay, your account can be turned over to a collection agency to recoup the unpaid balance.

Using existing credit.

One of the most common and hassle-free ways to pay for a medical procedure is with an existing credit card. If you have enough room on your card, this is certainly an option. However, if your card has a higher interest rate, make sure you can manage the payment once you account for that balance increase. Keep in mind that your credit can take a hit by maxing out your credit because credit utilization accounts for 30 percent of your overall credit score.

Applying for an interest-free credit card.

Another option when using a credit card to pay for medical expenses is to apply for a card with a 0 percent interest rate. The odds of approval on an interest-free card are higher if you have a good credit score, but be sure to read the fine print. Zero-interest periods are only offered for a limited amount of time so make sure you can pay the full balance — or at least the bulk of it — before that introductory period expires.

Taking out a personal loan.

A personal loan for medical costs allows people with sufficient credit scores and income to borrow money without offering up any collateral. This type of unsecured loan requires an application process that can often be completed online resulting in a quick decision from a loan provider.

Applying for a collateral loan.

Some banks offer personal loans that use something other than a home as collateral. For example, if your car is paid off and still has value, that can be used as collateral to secure a loan that you could use to pay for necessary medical expenses. However, make sure that the interest rate makes sense. And remember, you’ve put your asset at risk in the event that you fail to pay back the loan per the loan terms.

Refinancing your home and taking cash out.

Home equity can be used for a number of purposes. If you have enough equity in your home and your credit score is good, you may be able to refinance your home and take the cash out that you need to cover your medical expenses. This can be dually beneficial if you’re able to lower the interest rate on your existing mortgage in the process. A lower interest rate can translate to a lower monthly payment on the amount you still owe on your home, helping to offset the payment difference on the additional money you’ve borrowed against your home’s equity.

Using a healthcare financing credit card.

Credit cards specifically designed for medical expenses can help shoulder the burden of healthcare premiums or healthcare procedure costs. CareCredit is perhaps the most well-known credit card specifically targeted at medical expenses. This particular card can be paid off and used again and again for qualifying medical expenses. CareCredit offers an interest-free introductory period, but be aware that after that time, the interest rate skyrockets to 26.99 percent. Therefore, you may be just as well off applying for a zero-interest card that has a lower interest rate once the introductory period ends.

Finding a peer-to-peer lender.

Unlike larger banking institutions, peer-to-peer lenders often have more reasonable requirements for loan qualification. These loans connect healthcare consumers with individual lenders in the marketplace that can fund loans and the transactions are made through an online lending marketplace. These loans can range from $1,000 to $40,000 and the payoff terms cannot typically exceed five years. Some peer-to-peer lenders also work with those with credit issues, providing an alternative for those who cannot meet traditional lender requirements.

Getting a home-equity loan.

Home equity loans and lines of credit (also known as HELs and HELOCs) provide an alternative for those who do not want to refinance their primary home mortgage. These are smaller, separate loans that can be taken out against the equity of a home. While interest rates on HELs and HELOCs are higher than primary mortgage loans, they are typically still much better than credit card interest rates.

Taking out a loan against your 401(k).

Most 401(k) retirement plans allow participants to borrow up to 50 percent of the vested balance in their account, or up to a maximum of $50,000. Repayments are automatically deducted from the employee’s paycheck for up to five years. This option can be appealing in that it provides quick access to cash and has no impact on your credit report. Taking out a 401(k) loan also means you’re paying interest back to yourself instead of a credit card company or bank. There are also drawbacks to taking out a 401(k) loan, however. For one, you are essentially paying double taxes on this money because you will also pay taxes when you withdraw the money in retirement. Another word of caution: If you leave your job any unpaid loan amount you cannot satisfy will be reported as taxable income.
If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Image credit: FatCamera

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team