Nearly everyone faces unexpected medical bills at some point in their lives. While some people are fortunate enough to have comprehensive health insurance coverage or the financial means to handle the costs, many others are not as well protected. In fact, according to the White House, one in three Americans have medical debt, with $88 billion of that debt in collection, according to the Consumer Financial Protection Bureau. So, what happens when you can’t pay your medical bills? Let’s find out.
How Does Medical Debt in Collection Affect Your Credit?
The good news is that medical debt is now treated less harshly than other types of consumer debt. Previously, healthcare providers would typically sell outstanding debt to collection agencies after 60 to 120 days or more past due. However, recent legislation has extended this period to one year past due. Additionally, the three largest credit bureaus—TransUnion, Equifax, and Experian—have announced that all paid medical debts and unpaid debts less than a year old will be removed from credit reports. As of April 2023, this policy has been extended to include all medical collections under $500. This gives you more time to work with your insurance company and medical provider to create a payment plan and prevent your debt from reaching a collection agency.
How to Pay Off Medical Debt
When faced with medical debt, the first step is to ensure that you actually owe everything that is on your bill. Scrutinize each item for accuracy and double-check with your insurance company to make sure they have covered everything they should. Next, reach out to your medical provider to see if you can negotiate a payment plan that suits your financial situation. Some providers may even offer a medical credit card option. While both of these options come with risks and can impact your credit, they can help you keep your medical debt out of a collection agency. If you do decide to set up a payment plan, always make sure to get the agreement in writing, stipulating that the provider will not send the unpaid balance to a collection agency as long as you meet the terms.
There are also other ways to pay off medical debt, such as taking out a loan or acquiring a credit card with a 0% interest rate.
What to Do When Your Medical Bills Go to Collection
If your medical bills end up in the hands of a collection agency, it’s essential to take action immediately. Contact the agency right away and explore options to pay off the bill. While paying off the bill in full is the best option, it may not always be possible. In such cases, there are two widely used alternatives to consider.
Debt Management Plan
Working with a nonprofit credit counseling agency can help you set up a debt management plan. This involves creating a three-to-five-year program in which you pay the counseling agency, and they, in turn, pay the collection agency. Opting for a debt management plan tends to do less damage to your credit compared to the next alternative.
Debt Settlement
Negotiating a settlement with the collection agency is another strategy. This means agreeing to pay a portion of the debt. While settling is preferable to defaulting on payments, it’s important to note that the unpaid portion of the debt may remain on your credit report as a negative mark for seven years.
How to Rebuild Your Credit After Medical Collections
Even if your medical bills have gone to a collection agency, you can still improve your credit profile. There are three steps to take:
- Pay off your bill (and any other outstanding bills) in full.
- Ensure that you pay all new bills on time.
- Pay down your credit card balances, as your credit utilization ratio plays a significant role in determining your credit score. It is recommended to keep your credit utilization ratio below 30%.
Beware: Bills Can Be Sent to Collection Even If You’re Paying
Surprisingly, even if you’re diligently paying off your medical bill, the provider can still send the unpaid balance to a collection agency. That’s why it’s crucial to work out a payment plan with the provider and always have a written agreement. If a payment plan seems unfeasible, it’s time to explore negotiating a debt management plan or settlement agreement with the agency.
Insurance Doesn’t Cover Everything
While health insurance covers many medical costs, it doesn’t cover everything. There are deductibles, copays, and premiums that you need to factor into your medical expenses. It’s important to study your health insurance policy to understand its coverage and reach out to their helpline for clarifications if needed.
What Is the 2021 Medical Debt Forgiveness Act?
The 2021 Medical Debt Forgiveness Act is designed to assist Americans dealing with medical debt by forgiving the debt and helping them regain their financial footing. The act prohibits consumer protection agencies from adding medical debt information to a consumer credit report if the debt has been fully paid, settled, or is less than a year old. Additionally, a debt collector must notify the individual before reporting medical debt to a consumer reporting agency.
Can I Stop Medical Bills from Affecting My Credit?
Many protections have been put in place to prevent medical debt from appearing on your credit report. However, any debt that is not protected will negatively impact your credit score if it appears on your report. In such cases, the best course of action is to work towards paying off or settling the debt as quickly as possible.
TIME Stamp: Act Quickly If Medical Debt Winds Up at a Collection Agency
If your unpaid medical bills are sent to a collection agency, don’t despair. You can work with the agency to find the best way to pay off the debt, whether through monthly payments or a settlement. Ultimately, your goal should be to have the debt erased from your credit report.
Frequently Asked Questions (FAQs)
Does the record of unpaid medical bills go away after seven years?
Yes, it does. However, it’s important to note that you are still responsible for the unpaid amount. Additionally, the impact on your credit score caused by the debt could affect your eligibility for loans, apartments, or jobs.
How can I get medical bills off my credit report?
To remove inaccurate information about unpaid medical bills from your credit report, contact both the collection agency and the medical provider.
Do outstanding medical bills affect your credit when buying a house?
Yes, they can. A low credit score resulting from bills in collection can lead to higher mortgage interest rates or even prevent you from buying a house.
Remember, taking control of your medical debt is crucial for your financial well-being. Stay informed, explore your options, and take proactive steps to manage your medical bills effectively. For more insightful tips on personal finances, visit Personal Finances Blog.