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Medical Credit Cards and Loans Carry a Heavy Burden

With interest rates above 25 percent, consumers may want to think twice about these payment methods


spinner image Illustration of man standing outside hospital with his arm in a sling and a bandaged head holding up a very long medical bill.
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Faced with a big health care bill, you may want to think twice about putting it on a medical credit card or taking out a medical installment loan. These financing options can carry high interest rates that could put you deeper in debt or, worse, threaten your financial security if you aren’t careful, according to a new report from the Consumer Financial Protection Bureau (CFPB).​

Interest payments can increase medical bills by close to 25 percent for cash-strapped consumers who don’t pay off their balances quickly, according to the consumer watchdog agency. In fact, the CFPB estimates that U.S. residents paid $1 billion in deferred interest on medical credit cards and loans from 2018 to 2020. ​

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“Lending outfits are designing costly loan products to peddle to patients looking to make ends meet on their medical bills,” said CFPB Director Rohit Chopra. “These new forms of medical debt can create financial ruin for individuals who get sick.” ​

Over the past few years, financial services firms and fintech companies have created new financing products to cover medical procedures and health care for consumers who can’t afford payments outright. These medical credit cards and installment loans used to be reserved primarily for elective care, but the CFPB found they are now used for everything from ER visits to routine checkups. In many cases, the CFPB says they’re replacing low- and no-cost informal payment plans offered directly via medical providers. ​

“These products are often offered by a trusted doctor or nurse in doctor’s offices or hospitals when their patients are under significant stress,” wrote the CFPB in the report. “When these products are offered by medical providers, patients appear not to fully understand the terms of the products and sometimes end up with credit they are unable to afford.” Many of the financing arrangements offer deferred interest for terms between six and 18 months. If a balance remains after the promotional period ends, the patient is charged all the interest that would have accrued since the original purchase date. 

Key findings

  • U.S. consumers paid $1 billion in deferred interest payments for health care from 2018 through 2020. 
  • Consumers used medical cards and loans to cover nearly $23 billion in health care expenses for over 17 million medical purchases between 2018 and 2020. 

Between 2015 and 2020, consumers incurred interest on 20 percent of their health care purchases when using deferred-interest cards or loans. People with credit scores below 619 incurred interest more frequently, for about 34 percent of their health care purchases.

Patients who should be eligible to receive reduced or free care through a financial assistance program or their insurance plan may instead be signed up for a medical card or loan even though the financial assistance programs would be better for them. 

The APR of the typical medical credit card is 26.99 percent; the mean APR for all general-purpose credit cards is approximately 16 percent.

“For the majority of patients who pay off their full balance in the designated time period, deferred-interest financing can be advantageous. For those who do not understand the terms — or who cannot pay the amount in full during the promotional period — the cost substantially exceeds the cost of other available credit,” the CFPB concluded. “As a result, people with low or moderate incomes who face the worst financial outcomes may be subsidizing those who can take advantage of the special financing periods.” ​

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What you can do

When it comes to medical bills, you aren’t alone. Debt.com’s Medical Debt Survey found that close to 6 in 10 consumers are having a hard time paying medical bills in the face of inflation. The good news is that there are ways to pay. for it without racking up expensive debt. For starters, if you’re offered a medical credit card with an interest-free period, make sure you can pay off the bills within that time frame. If that’s not realistic, request a payment plan directly with the provider instead. Some doctors will offer interest-free plans for multiple years. Make sure to get the payment plan in writing to avoid any of the doctor bills being sent to collections, says Howard Dvorkin, CPA, and chairman of Debt.com. ​

If you have insurance and your provider declines to cover a procedure, Dvorkin says to appeal the decision. It also behooves you to go over the bill to spot any errors that may have added to the cost. Even saving a couple of thousand dollars can go a long way. “Health insurers make mistakes, too, so consumers should ask their insurance company about what they do and don’t cover. People with gap insurance should also check with their providers to see if their bills will be covered,” says Dvorkin.

If all else fails and you have multiple medical debts, you can try to consolidate them into one loan. This will give you one monthly payment and potentially a lower interest rate. You can also try to settle the debt, although this will negatively impact your credit score. To settle, Dvorkin says to negotiate directly with the collection agency. “Consumers who find themselves with medical bills they can’t pay should prioritize keeping their bills out of collections — all while fighting to receive a reasonable price or payment plan,” says Dvorkin.

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