1. DEBT SOLUTIONS

How to Pay Off Medical Debt

Why and How to Cut Healthcare Costs
BY Janie Basile
Jun 7, 2022
 - Updated 
Oct 1, 2024
Key Takeaways:
  • About 1 in 3 Americans struggle with medical debt.
  • Healthcare costs affect other debts and credit scores.
  • Check out solutions to avoid cutting healthcare, but also n

Medical debt is one cost over which we have little or no control. In fact, two-thirds of all bankruptcies are caused by medical bills. Here are a few more alarming facts:

  • Americans spend an average of $5,000 a year on out-of-pocket healthcare costs.

  • Almost 60% of US adults have had medical debt at some point in their life.

  • 70% of Americans with medical bills had to cut their food expenses to avoid bankruptcy.

  • 20% of medical bankruptcy filers are in the 55+ age group.

  • Almost half of those who filed for medical bankruptcy cite hospital bills as their most considerable expense.

You can lessen the impact of unexpected medical debt by controlling costs where you can and negotiating solutions with your providers.

Healthcare Costs Drive Other Debts

Healthcare costs can add to other debt and damage your credit score. In a recent Freedom Debt Relief survey, 42 percent of respondents reported using a credit card to pay off medical debt in 2019. Another 19 percent have had to turn to family or friends to borrow money to cover medical bills.

Using a credit card to meet these types of expenses may seem like a good idea but should be avoided if possible. For one thing, it increases your credit utilization ratio (the amount you currently owe on your cards divided by your credit limit), which could affect your ability to qualify for certain types of loans like a mortgage or car loan. Moreover, if you get behind on payments, you’ll be charged late fees, which will add to your overall debt burden and negatively affect your credit report.

Healthcare: Don’t Cut Corners

Financial health is not the only thing that suffers thanks to the high cost of medical treatment. Our survey shows another dangerous trend: many Americans are delaying or avoiding routine care and necessary procedures to avoid going into debt or tapping into savings.

Survey respondents reported taking the following actions because of prohibitive costs:

  • 41% skip going to the doctor

  • 28% delay a medical procedure

  • 28% don’t buy medicine

  • 19% ration their medicine

While this type of behavior is understandable, it goes without saying that delaying certain treatments or rationing prescription drugs is not a smart or safe tactic. Neglecting routine healthcare or forgoing procedures can lead to bigger, more serious health problems and bills in the long run.

Solutions That Offer Medical Debt Relief

Before you consider making drastic changes to your existing healthcare plan, there are strategies you can employ to help minimize your financial outlay. These tactics can help you get medical debt under control and can give you a path forward if you’re wondering how to cut healthcare costs in the future:

1. Review bills for accuracy of services and billing codes

This step may seem tedious when added to everything else going on in your life, but it’s important to do. Don’t assume that your medical bills are always correct. Often, human error means that billing codes get entered incorrectly, or you’re charged for the same service twice. It’s a good idea to look closely at the itemized bill. Then, if you notice anything off, reach out to the medical facility.

2. Review the Explanation of Benefits (EOB)

The EOB is the statement you get from your insurance company summarizing the costs of the healthcare services you received. It details how much your provider is charging your insurance company and how much you may be responsible for paying. This is not a bill—if you owe money, you’ll receive a separate invoice from your provider.

3. Negotiate your bill to an affordable level

Medical bills aren’t set in stone like other bills. There’s a good chance you can reduce your financial burden if you ask. Speak with the billing manager at your doctor’s office or the hospital where you were treated and ask if there’s a possibility of settling the bill for a lower amount. Certain providers even offer charity-care programs where eligible patients get discounted services. But you need to ask.

4. Look into payment options

If you can’t immediately pay the total amount in full, inquire about payment plans. Many medical facilities will work with you to find a monthly amount you can afford to pay. Or you may be able to get a loan. Some healthcare providers offer low-interest payments, with better terms than credit cards or other types of loans.

5. Avoid using credit cards to pay medical bills

As mentioned previously, using credit cards to pay medical debt is not the best solution. The risk of falling behind with payments and damaging your credit is too great. Paid medical bills generally will not appear on your credit report and hospitals don’t report unpaid bills to the credit agencies. The medical establishment in question may eventually hand over an unpaid debt to collections, but this won’t affect your credit rating until they report it to one of the credit bureaus.

Setting Aside Funds for Healthcare

For those trying to figure out how to cut healthcare costs, there are also two valuable savings methods that can make your costs more manageable: Flexible Savings Accounts (FSAs) and Health Savings Accounts (HSAs). Both allow you to allocate pre-tax dollars to pay for medical expenses like co-pays, deductibles, and prescriptions giving you a substantial reduction in taxable income. However, you’re not usually able to carry both types of accounts at the same time.

Which is best for you? Each has merits and drawbacks. The most beneficial for your situation depends on multiple factors including the details of your healthcare plan and your comfort level with pre-tax paycheck deductions.

Flexible Savings Accounts

Pros: Currently, you can contribute $2,700 a year, which is an increase of $50. Depending on your tax bracket, this could save you at least $600 in taxes annually. Those age 55 or over can contribute an additional $1,000 per year, which is considered a “catch-up.”

Cons: The allocated funds expire on a yearly basis. So, it’s crucial that you estimate your healthcare expenses carefully to avoid losing unused funds at the end of the year. Also, FSAs belong to your employer, so are not transferable if you leave the company.

Health Savings Accounts

Pros: The higher contribution limits equal bigger tax savings. Currently, the maximum is $3,550 for an individual and $7,100 for a family. The funds don’t expire so you can roll them over from year to year. In fact, you’re encouraged to do so and invest any unused portion. Investment gains are also tax-free.

Cons: HSAs are available only with high-deductible health plans. Currently, this means that the minimum annual deductible for an individual is $1,400 or more and for a family $2,800 or more.

Treat Your Debt Headache for Good

Ongoing debt–whether it’s medical or another type–can be very stressful. If you’re struggling with debt, it might be time to take action. Freedom Debt Relief is here to help you understand your options for dealing with your debt, including our debt relief program. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future. Find out if you qualify right now.

A look into the world of debt relief seekers

We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during August 2024. This data highlights the wide range of individuals turning to debt relief.

Debt relief seekers: A quick look at credit cards and FICO scores

Credit card usage varies significantly across different age groups, reflecting diverse financial needs and habits.

In August 2024, the average FICO score for people seeking debt relief programs was 582.

Here's a snapshot by age group among debt relief seekers:

Age groupAverage FICO 9 credit scoreAverage Credit Utilization
18-2556593%
26-3557591%
35-5057889%
51-6558387%
Over 6559782%
All58288%

Use this data to evaluate your own credit habits, set financial goals, and ensure a balanced approach to managing credit throughout your life.

Home-secured debt – average debt by selected states

According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) (using 2022 data) the average home-secured debt for those with a balance was $212,498. The percentage of families with mortgage debt was 42%.

In August 2024, 27% of the debt relief seekers had a mortgage. The average mortgage debt was $236,240, and the average monthly payment was $1,890.

Here is a quick look at the top five states by average mortgage balance.

State% with a mortgage balanceAverage mortgage balanceAverage monthly payment
California21$391,801$2,725
Washington DC18$336,914$2,290
Utah35$324,405$2,184
Nevada26$307,368$2,063
Massachusetts29$303,507$2,366

The statistics are based on all debt relief seekers with a mortgage loan balance over $0.

Housing is an important part of a household's expenses. Remember to consider all your debts when looking for a way to get debt relief.

Regain Financial Freedom

Seeking debt relief can be the first step toward financial freedom. Are you struggling with debt? Explore options for debt relief to regain control of your finances. It doesn't matter how old you are or what your FICO score or credit utilization is. Take the first step towards a brighter financial future today.

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Frequently Asked Questions

What happens if you can't pay unsecured debt?

Unsecured debts must still be paid. Just because the lender can't take property from you for non-payment doesn't mean you just walk away. Lenders can sue you for payment and possibly garnish your paycheck or attach your bank account. They can send your account to a collections agency. They may be able to contact you often and harass you about your debt. And they can report your default and harm your credit score.

Does enrolling in a debt relief program stop collection calls?

You can stop calls from debt collectors by asking them to and by following up with a written cease-and-desist letter. If a debt collector continues to call, it’s a violation of the Fair Debt Collection Practices Act (FDCPA) and you could sue the collection agency for damages. 

However, the FDCPA doesn’t apply to primary creditors like your bank, personal loan provider, or credit card issuer. In many states, they can continue to call you whether you like it or not. And when you stop making payments to save for a debt settlement offer, your primary creditors will probably call you. 

That said, once you or your debt settlement company reaches a settlement with your creditor, there is no reason for collection calls. 

How long does it take to garnish a bank account?

The language in bank and credit union deposit agreements varies. Still, most institutions state that they can exercise the right of offset once a loan becomes “past due” or that they will exercise their right under applicable state law. So an offset could happen as soon as you miss a payment, and you will probably not get a warning. 

For garnishments involving a court order, the judgment creditor must file the request for garnishment, and the courts typically issue the order within a few days. At that point, the creditor can present it to your bank and freeze your account. This usually is one to two weeks from when the creditor requests the order. Neither the creditor nor the bank has to give you any notice that a garnishment is in process.