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Article Updated June 6, 2018 Mia Taylor

In a perfect world, unexpected medical bills would be paid for from a rainy day savings account, money you’ve specifically set aside for life’s many unplanned expenses.

Unfortunately, however, not everyone has such an account. And those who do, may not necessarily have enough cash accumulated to cover a pricey medical bill.

That leaves a variety of options for addressing such an expense, including consumer credit cards, medical credit cards, personal loans and payment plans negotiated with the providers. Each of these choices has pros and cons that should be weighed carefully.

In addition, before handing over any money, the first step should always be carefully reviewing the bill for accuracy and requesting a discount from the provider.

Review the Bill

Don’t assume charges are correct just because they appear on a medical bill.

Always request an itemized statement for your records, providing an opportunity to catch errors such as duplicate charges, says Alexander Lowry, a professor of finance at Massachusetts-based Gordon College and director of the school’s Master of Science in Financial Analysis program.

“Consumers should make sure they agree with each charge,” explained Lowry. “Do they remember receiving all the items listed? Was there a medication that was discontinued? “

In addition, it’s important for consumers to understand how and what their insurance policy pays for various medical expenses, particularly such things as out-of-network bills. This information is outlined in the insurance-plan documents or can be obtained by calling the insurance company.

“Consumers should make sure bills are being paid at the appropriate out-of-network rate,” Lowry added.

Negotiate a Discount

Once you’ve carefully reviewed a bill, call the provider and request a discount or seek to negotiate how much you’ll need to pay.

Success will vary by provider, but negotiation can be an especially effective tool when dealing with out-of-network practitioners or in situations where there’s no insurance coverage, said Lowry.

“Consumers should start by asking for a 30% to 35% reduction and negotiate from there,” he added. “Offering to pay in cash can also land a discount.”

It’s also a good idea to call the billing office upon receipt of the bill. The sooner you contact the provider in question, the more amenable they’ll likely be to working with you, said Lowry.

Use Savings

Tapping into a savings account is one of the top options suggested by financial advisors for paying an unexpected medical bill. There’s no finance charge associated with this approach and you can just pay the bill and move on with your life.

But even this choice comes with some caveats, says Lori Atwood, a certified financial planner and founder of Fearless Finance, a personal platform and app.

“Even if you have enough savings, you do not want to use up all your savings, because there could be more bills down the pike,” says Atwood. “If you don’t have enough savings to pay it and still have three months’ expenses in your emergency savings account, you will have to use credit.”

Medical Credit Cards

Many medical credit cards provide interest-free grace periods that last anywhere from six to 12 months, making them a good path for those who simply need a little time to gather money.

CareCredit for instance offers no interest if the debt is paid in full within six, 12, 18 or 24 months. Additional options include AccessOne MedCard and Wells Fargo Health Advantage.

However, it’s important to use this option wisely, says Steven Yager, of Michigan-based Yager & Associates.

“If you use a medical credit card, be sure to pay the account in full before the end of the interest free period or the deferred interest rate could put you in substantial debt,” Yager advises.

Consumer Credit Cards

Consumer credit cards are one of the least ideal ways to handle a large, unexpected medical expense, says Harrine Freeman, a financial expert and author of How to Get Out of Debt: Get an “A” Credit Rating.

“You will end up owing more due to finance charges,” said Freeman, who added that putting a significant medical bill on a credit card may also lower your credit scores if it takes up most of your credit limit on a card.

Personal Loans

Like credit cards, using a personal loan to pay a medical bill means you will be incurring interest and as a result could end up paying far more than you would otherwise. However, a personal loan may also be better for your credit scores than maxing out a credit card.

Freeman suggests instead contacting the medical provider and asking about financial assistance programs or a hardship repayment plan. Alternatively, you could hire a medical bill advocate.

401(k) Plans

Digging into your 401(k) plan is perhaps the worst choice, yet it’s an approach many people readily rely upon.

“People have been conditioned to think their 401(k) is a place they can borrow money from for unexpected bills,” says Yager.

When borrowed however, 401(k) money is taxed. And the loans are repaid with after-tax dollars. As a result, someone in the 22 percent tax bracket would need to earn $122 to repay $100 of the loan, Yager explained.

What’s more, your 401(k) money is taxed again when withdrawn in retirement, so those who take out a loan are subjecting themselves to double taxation.

Take Action Quickly

No matter which approach you choose to paying a medical bill, the key is to take action and do so quickly.

Many medical providers are turning to collection agencies far more quickly than in the past and once that happens, it becomes far more difficult to resolve the situation in a favorable way.

“Medical providers have gotten trigger-happy about turning bills over to collections,” said Lowry. “Some health-care providers report bills as delinquent to the credit bureaus after as few as 30 days, hoping to prod customers into paying. And it becomes difficult to negotiate with the health-care provider once a bill is in collection.”

If you’re worried your medical bills have negatively impacted 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 every 14 days.

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