I know a thing or two about medical debt. I had cancer four times. And I’m not the only one who worked for years to pay off medical debt. According to the Consumer Finance Protection Bureau, 43 million Americans owe a collective medical debt of $88 billion.
“I could definitely see someone with otherwise strong credit lose 100 points or more just because of medical recovery,” said Ted Rossman, senior industry analyst for Bankrate.com.
And that can be a game changer. Let’s say you have a good credit rating. InvestopediaThe auto loan calculator says the range for a good score is 661 to 780. If you were to buy a $40,000 car with $8,000, your interest rate would be 4.21%. Your monthly payments would be just over $592.37. And the calculator says your total interest over the life of the loan would be $3,541.97.
But a medical bill sent to collections can drop your score by 100 points, pushing your monthly payments up to $635.75, and the total interest paid would be $6,145.25.
“I think it could save a lot of people a lot of money, because a better credit score means you get better interest rates and you qualify for more loans and lines of credit,” he said. said Rossman. “It really is one of the most important numbers in our financial lives.”
Even if your medical bill has gone to collections, if you pay it, under the new rules that come into effect July 1, it won’t affect your credit score.
Rossman points out that not only are paid medical debts erased from your report, but also that medical debts won’t be reported to credit agencies until after a year of being sent to collections.
It could be life changing. So now when you get better physically, you can also come out of it financially healthy.
So you might be wondering why only medical debt disappears? This is because creditors have found that medical debt is not a good predictor of whether you pay your bills on time. For example, if you have a serious car accident and have accumulated a mountain of medical debt, this does not predict whether you will pay your credit cards on time.
If you have medical debt, here’s Deanna’s to-do list:
- Two Medical Bill Reporting Changes Go Into July
- Check your credit report in August.
- If you paid a medical debt on your report or if it hasn’t been a year since the medical debt was collected, dispute that debt with all three credit reporting agencies.
- When you receive a medical bill, ALWAYS ask for an itemized statement. Errors in hospital billing are not uncommon.
- Try to negotiate it.
- Ask for an interest-free payment plan.
- NEVER use a credit card to pay off medical debt. The medical facility will usually offer a better payment option than using a high interest rate credit card. If the establishment declines a payment option, ship it for a low-interest personal loan. The bank rate, LendingTree and Forbes all have tips and comparison options.
- And check your credit report regularly. Annual credit report allows free weekly reports until the end of the year. Starting in 2023, medical debts under $500 will no longer be reported at all.