In the US, 56 million adults struggle with medical debts. Of those Americans, 1.7 million will have medical debts that drive them into bankruptcy. Even in single-payer health systems, like what you’d find in the U.K., it’s possible for people to rack up big medical bills.
Services that aren’t covered by the NHS, like in vitro fertilization or cosmetic surgery, are paid for out-of-pocket by the Brits that seek them. Also, when people opt to forgo delays in the public system to seek private treatment elsewhere, they can find themselves facing large medical expenditures.
No matter what medical bills you’re facing, don’t pay for them with your credit card. In fact, paying for medical bills with your credit card is one of the worst financial decisions you could ever make.
Why Credit Cards and Medical Expenses Don’t Mix
According to Bankrate, the average consumer credit card charges a 13-percent fixed rate and a 15.68-percent variable rate. If you put a $5,000 medical bill on a credit card that charges a 15-percent interest rate, take a look at what will happen to your bill if you only make your minimum payment:
- Calculate the minimum. Most banks charge interest plus at least one percent of your balance as your minimum monthly payment. For your medical bill, your minimum payment might be $112.50 per month.
- Add interest. Every month, your credit card provider will add one-twelfth of your total interest to your balance. Fifteen percent of $5,000 is $750 per year, which means you’ll pay 750/12, or $62.50, per month on your $5,000 balance. Plus, your minimum payment goes toward interest first and then toward your principal balance. Of the $112.50 you pay monthly, $62.50 pays interest, and only $50 pays down your balance.
- Make monthly payments. Your $5,000 medical bill will take 266 months for you to pay off once you’ve added in your monthly interest charges. In case you were wondering, that’s over 21 years and a total of $5,729 in interest. That’s right — if you make the minimum payment on your debt, you’ll pay more in interest than you paid for the initial medical bill.
- Never pay late. If you make a late payment, you’ll not only pay a significant late payment fee but also watch your credit card interest rate increase by 10 percent or more. If your interest rate shot up to 25 percent as a result of a late payment, your minimum payment would increase to $154.17, and $104.17 of your monthly payment would go toward interest alone.
There Has to Be Another Way
When you’re drowning in medical debt, you can often get help from a no-fee, no-win legal service. For example, if you experience an accident at work, you could enlist help to secure worker’s compensation payments that will cover your bills.
If you’re stuck with paying your medical bills, it’s a good idea to call your doctor, hospital, or ambulance provider. Many healthcare providers will work out a payment schedule with you, and they will charge little or no interest as long as your payments stay current.
If you can no longer make your monthly payments because of job loss or disability, check to see what public benefits might be available for your case. You can also purchase disability insurance while you’re healthy, which will help to cover missed income if you get sick or injured. When you can no longer meet your monthly expenses, you can file — or in the U.K., your creditors can file for you — to receive bankruptcy protection. However, bankruptcy has nasty consequences for your credit report, and it could keep you from receiving credit to buy a home or a vehicle.
Some Relief for Your Credit Score
If unpaid medical bills are hurting your credit score, you’ll be glad to hear that FICO, the agency that computes most consumer credit scores, has decided to reduce the hurt by raising your score slightly if you have a good payment history. According to estimates, people with a solid history of making payments will see their credit scores increase by 25 points in spite of unpaid medical bills.
For most people, this relief helps a little, but it doesn’t help enough. The takeaway: If you incur medical bills, never ever charge them to your credit card.