Medical Debt Relief: A Path to Settle and Consolidate Your Medical Bills

Health problems are stressful enough without the additional worry of paying for them.  Unfortunately, debt from medical bills can drag out for years. 

If you’ve got unpaid medical bills, you’re far from alone. The Consumer Financial Protection Bureau says one in five Americans is impacted by medical bills. 

If you’re in that group, help is available. Various forms of debt relief could ease your stress.

What Is Medical Debt Relief?

Medical debt relief includes several strategies for handling your debt. You may find that more than one of these approaches is right for your situation.

Whichever approach you take, it helps to start on a solution as soon as possible. In a way, debt is a bit like a medical condition. The sooner you address medical debt, the easier it is to deal with. 

If it goes unaddressed, the consequences include an ongoing drain on your finances and potential damage to your credit standing. Ignoring the problem will probably cost you more in the long run. Interest and late payment penalties mean greater expense, and unpaid debts could ding your credit.

Freedom Debt Relief is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.

Key Strategies for Medical Debt Relief

The following table summarizes some of the strategies you can use to find medical debt relief:

Here is a brief description of how each strategy works.

Review bills for errors

• Go through each line of all your medical bills to check for accuracy.

• Verify you haven’t been billed for services you did not receive, or for charges that were covered by insurance.

• Double-billing is common with medical bills, so make sure you aren’t charged more than once for the same service.

Negotiate with healthcare and insurance providers

• Contact your healthcare providers to ask if they will reduce the charges.

• Once you’ve finalized the medical bills, ask for a detailed explanation of why any uncovered items weren’t covered. Find out how to appeal those decisions.

Look for government and charity assistance programs

• Federal, state, and local agencies, programs affiliated with hospitals and pharmaceutical companies, and charitable organizations may all offer some kind of financial assistance.

• You may have to provide income information to qualify.

Work out a payment plan

• When you’ve done what you can to reduce the amount you owe, figure out how much you can afford to pay each month.

• Ask your creditors to accept a payment plan you can afford.

Medical debt consolidation

• Debt consolidation means using a new loan to pay off more than one debt.

• Consolidating medical debt could simplify payments and might make them more affordable.

• You need a credit score high enough to qualify for the consolidation loan.

Debt management plans (DMPs)

• Some credit counselors can help you set up a DMP to manage unsecured debts like personal loans and credit cards. 

• The credit counselor may negotiate fee waivers or lower interest rates on your debts.

• You make a single payment to the credit counselor each month, and they pay your individual creditors.

• The goal is to pay off all of your debt in three to five years, and the monthly payment is likely to be high.

• You give up your credit cards while you’re in the plan, and your credit report shows that you’re in a DMP.

• The U.S. Department of Justice has a tool to find approved credit counseling agencies by location.

• A debt management plan typically has a negative effect on your credit standing, because you have to close credit card accounts while they still have a balance. 

Medical debt settlement

• This is an agreement to have a creditor accept less than the full amount owed.

• If you are insolvent (you owe more than you own) when you settle the debt, you won’t owe federal income taxes on the forgiven debt.

• Once a medical debt is reported as paid, it’s removed from your credit report.

• Debt settlement typically has a negative effect on your credit standing, mainly because most of the settled accounts were already in default or collections. Also, settled debts are reported as such on your credit report. A good credit score is usually not the primary concern for people considering bankruptcy.

Bankruptcy

• Bankruptcy is a legal process to get rid of your debts, either by wiping them out or via a payment plan.

• You can include some debts in bankruptcy that are not candidates for debt settlement or a DMP.

• Bankruptcy has a negative effect on your credit standing, but a good credit score is usually not the primary concern for people considering bankruptcy.

The path to good credit is the same for everyone, no matter what debt solution you choose. Credit scores are based on:

• Payment history (always pay on time)

• Amounts owed (keep credit card balances low)

• Credit age (keep old accounts open and avoid applying for new accounts)

• Credit mix (whether you have experience with different kinds of accounts)

• New credit (how often and how recently you’ve applied for new credit accounts)

Organizations That Help with Medical Debt Relief 

Nonprofit hospitals are required to offer payment assistance programs and provide you with a written list of those options. 

Government agencies can also be a good source of information about coping with medical debt. Several federal organizations offer financial resources for medical debt. Many of these organizations cater to specific groups. 

Finally, many states have agencies to help distribute financial aid and information about healthcare bills and insurance. These are generally referred to as Consumer Assistance Programs. Check whether there is a Consumer Assistance Program in your state. 

The Path to Medical Debt Settlement

Medical debt settlement could reduce the amount you owe.

Debt settlement involves negotiating with creditors to have them accept less than the amount owed because you can’t afford to fully repay your debts. Creditors may decide that it’s more cost-effective to accept a lesser amount than to try to collect a larger sum that you might not be able to pay.

You can try to negotiate settlements with your creditors yourself, or you can hire a debt settlement specialist to handle the negotiations for you. You could make a lump sum offer to get rid of the debt all at once. Occasionally, creditors agree to a payment plan. 

To make a lump sum offer, you need to have money set aside. Most people stop making their debt payments to save up funds for making offers. Missing payments is likely to seriously damage your credit standing, but your score can recover over time. 

Getting rid of your debt is a huge step toward financial stability. Once you’re free of those looming bills, it could be easier to work toward a better credit score by making your payments on time and keeping credit card balances low.

A debt relief program typically takes two to four years to complete. Debt settlement seldom works with secured debt like car loans and mortgages. However, since medical debt is usually unsecured, it may be a good candidate for debt settlement.

Debt settlement comes with certain costs. If you work with a professional debt settlement company, you pay a fee. Also, the canceled debt is considered taxable income by the IRS, unless you’re insolvent. Many people who go through a debt settlement program are insolvent—meaning you owe more than you own—and don’t owe taxes on their forgiven debt. 

Simplifying Your Bills Through Medical Debt Consolidation

Another debt relief option that might save you money is medical debt consolidation. It could also make it easier to keep track of your monthly bills. You can use it for medical and non-medical debt.

Debt consolidation involves rolling multiple debts into one. You simply take out a new loan to pay off old debts. That way, you have a single monthly payment instead of several.

Debt consolidation could simplify payments and make them more affordable. In some cases, you can lower the interest rates on your debt. You might also consider stretching repayment over a longer period to lower your monthly payment.

Options for medical debt consolidation include personal loans and low- or zero-interest balance transfer credit cards. Only consider a balance transfer if you have a clear plan to pay off the debt before the promotional interest rate expires. Otherwise, your debt could get a lot more expensive. The goal is to find interest rate and repayment period terms favorable enough to make your monthly payments affordable.

Choosing Between Medical Debt Settlement and Consolidation

Both debt settlement and debt consolidation could make your monthly payments more affordable. So which is the better choice?

Debt settlement involves asking creditors to cancel part of your debt. There is no minimum credit score required, and you could end up paying less overall compared to debt consolidation. There is usually credit score damage, although medical debt gets special treatment, in some cases not showing up on your credit report. 

A new rule took effect in 2022 and 2023, when credit bureaus were required to remove medical debt under $500 in collections, unpaid medical debt less than a year old, and medical debt that has been paid off from Americans’ credit reports. As a result, fewer borrowers are adversely impacted by medical debt when they are trying to borrow money. 

Debt settlement could be a good choice if you have a financial hardship that makes it difficult or impossible to pay off all your debts in full.

Debt consolidation requires that you have a good enough credit score to qualify for a new loan. You pay off your debts in full, and the loan won’t hurt your credit score unless you pay late or default.  

Getting Started: Steps Toward Medical Debt Relief

Any debt relief option you choose is likely to be more effective the sooner you begin. Here are some steps to help you get started:

• List your debts and all the details about each account.

• Make a budget, and figure out how much you can afford to pay toward your debts.  

• Review your debt relief options. It might help to talk to a debt expert.  

• Choose the option that looks best for your situation. 

• Commit. Getting rid of debt is rarely quick or easy, but you can do it.