Is Medical Debt Consolidation A Good Idea? The Pros and Cons

is medical debt consolidation a good idea

Medical debt is one of the most significant sources of financial stress for Americans. With increasing medical costs and the complexity of insurance coverage, it's no wonder that many people are looking for solutions to manage and reduce their debt.

Health insurance's purpose is to safeguard you from financial hardship caused by medical costs, but it doesn't always fulfill that purpose. Even with insurance, 63% of adults still incur debt from medical bills, according to research from the Urban Institute.

One way to manage this type of debt is medical debt consolidation.

It is essential to learn how to navigate the process and understand if it's the right strategy for your financial situation. Otherwise, you could face more issues in the long run.

This article will explore the pros and cons of consolidating medical debt so you can make an informed decision.


What Is Medical Debt Consolidation?

Medical debt consolidation is the process of combining multiple medical debts into one single loan. It can help make paying off medical bills easier, as you will only have to manage and pay one monthly payment instead of many.

Please note that it does not eliminate or reduce the principal. Instead, it combines the payments into one single monthly payment to assist in making the repayment of medical debts more manageable.

This type of debt consolidation differs from credit card debt consolidation because medical debt is typically unsecured, and you cannot discharge it in bankruptcy. However, lenders still consider your credit score, and having a good score significantly contributes to getting approved.


Is It a Good Idea To Consolidate Medical Debt?

Knowing the available options and being prepared for a potential setback is always beneficial, considering that the average hospital stay costs around $2,883. 

However, it's not enough to know about medical debt consolidation — the real question is whether you should merge your debts into one loan.



These are the advantages of medical debt consolidation:



Medical debt consolidation can simplify your financial life by bundling your medical debts into one payment. It makes it easier to track and pay off multiple monthly bills.

It also helps you stay organized, as you no longer have to manage multiple payments to different lenders.

On paper, consolidating medical debt may not appear to be a huge deal, but in practice, it can save people from the hassle of remembering to pay multiple bills and ensure that they make all their payments on time. The consolidation process can also save money in the long run.


Lower Interest Rates

It's possible to lower the interest paid on medical debt when consolidating it. You can save money over time by merging debt into one lower-interest loan and reducing monthly payments.

You should check whether you qualify for a loan with a lower interest rate than you currently have and consider making the switch. It can help you pay off medical debt faster.

The amount of interest saved can be significant. It's possible to save hundreds or even thousands of dollars.


Improved Credit Score

One of the main benefits of consolidating medical debt is that it can lead to an improved credit score. Consolidating medical debts into one loan with a single monthly payment allows you to make payments on time and reduce outstanding debt.

It can help improve your credit rating and make qualifying for future loans or lines of credit easier. Making timely payments while consolidating medical debt can significantly improve credit scores.


Debt Forgiveness

When you consolidate your medical debt, you may get a portion of the amount owed forgiven. This means your creditors may agree to reduce the total and allow you to pay back a reduced balance.

With this type of debt forgiveness, you can improve your credit score and financial situation in the long run. Debt forgiveness isn't always automatic, though.

The process can be complicated and time-consuming. It typically involves negotiating with creditors to reduce the amount owed and may include a debt management plan.

You may need to reach out to creditors and explain why you need help. Nonetheless, it could be well worth it if they can get some of your debt forgiven.



On the other hand, these are the potential risks of medical debt consolidation:


Longer Repayment Period

You will likely have a more extended repayment period because you will take out a new loan to pay off medical bills and other debts.

That could mean more interest payments over time, so it's important to consider whether this option is truly in your best financial interest.


Additional Fees

You should also be aware of any fees associated with medical debt consolidation. There may be up-front costs for the loan and ongoing monthly or annual fees.

It's important to factor these into the cost of the new payment plan so that you can make sure it saves you money in the long run.


Negative Impact on Credit Score

Medical debt consolidation may hurt your credit score. This is because when you consolidate multiple accounts into one, the total amount owed increases, and it looks worse on your credit report.

Additionally, many lenders will require a hard inquiry when processing the loan, which could further damage your credit score.


Risk of Default

Another risk to consider when consolidating medical debt is the risk of default. Consolidation loans typically involve a smaller monthly payment and longer repayment terms, making it easier to keep up with payments.

However, if you're not able to make the new loan payments on time and in full each month, you could end up defaulting on the loan. 

Defaulting would have severe consequences for your credit score and overall financial health.


How Does It Affect Your Credit?

Lenders report the resulting loan from consolidating medical debts to the major credit bureaus, namely Experian, TransUnion, and Equifax. Fortunately, it takes 12 months to add it to your credit report.

It means that during the life of the loan, your repayments are being monitored and will affect your payment history later on. As long as the payments are up to date, your credit score is likely to go up. However, your credit score will take a hit if payments are missed or late.


Maintaining a Good Credit Score

Making regular and timely payments can help build a positive credit history — which benefits your overall credit score. 

However, suppose you don't pay on time or skip payments altogether. In that case, this can lower your credit score significantly and make it harder for you to borrow money in the future.

Additionally, consolidating medical debt can also lower your credit utilization ratio. That's the ratio of how much debt you have compared to your total available credit.

When you decide to consolidate, it takes all of those smaller balances and combines them into one lump sum, reducing the debt you owe and, in turn, lowering your overall credit utilization ratio.

You should ensure you know the potential effects of consolidating medical debt on your credit score. This way, you can take all the necessary steps to ensure a positive financial outcome.


How to Determine If Medical Debt Consolidation Is Right for You

These are the factors to consider when deciding if medical debt consolidation is the right choice for you:

  1. Amount Owed: Youl must determine your total amount of medical debt to ensure that debt consolidation is the right option. This way, you know what you're dealing with before proceeding.
  2. Budget: Another factor to consider is your budget. You should ensure that your income and expenses are balanced and that you can afford your debt consolidation payments.
  3. Other Options: Other options may be available for those struggling with medical debt, so it's important to consider them before deciding on a course of action. Consolidation may be a viable strategy if there are multiple sources of medical debt, but it's not the only one.
  4. Interest Rates: Depending on your credit score and other factors, you may qualify for a low-interest loan that could help you pay off expensive medical bills quickly. However, if your credit needs to be in better shape, finding an attractive loan with reasonable terms might be challenging.


How to Consolidate Medical Debt

Now that you're aware of the pros and cons, as well as the factors to consider when deciding if consolidation is the best course of action, here are five possible ways to consolidate medical debt:


1. Personal Loan

With a personal loan, you get an agreed-upon amount and pay it back with interest over time in monthly installments. Additionally, some lenders offer competitive rates and flexible repayment terms so that you can find the best fit for your financial situation.

Bankrate noted that you could use the funds from a personal loan to make home improvements, particularly installing stairlifts or modifying your bathroom for better accessibility.

You can apply for personal loans through banks and credit unions. 121 Financial offers fixed, low annual percentage rate (APR) personal loans with a repayment period of up to 60 months.


2. Home Equity

They can also take out a home equity line of credit (HELOC) or a loan against their home equity to consolidate medical debt. This approach might be the right fit for those with sufficient home equity who must keep monthly payments at a minimum.

However, it is important to remember that if borrowers fail to pay the loan, their residence, which secures the home equity loans, could be subject to foreclosure.


3. Credit Cards

Credit cards are one of the most popular options for medical debt consolidation. However, they can come with high-interest rates, making it difficult to pay off the debt quickly.

Additionally, credit cards can have additional fees and penalties that may make them a less-than-ideal choice. You can consider a local credit card, which can give you extra rewards for more savings.


4. Debt Management Program

A debt management program is one way to consolidate medical debt. This program involves working with a credit counseling agency that helps borrowers negotiate a payment plan and lower interest rates with creditors.


5. Bankruptcy

Bankruptcy is a legal process that allows you to have your debts discharged or forgiven. It can be an effective way of dealing with overwhelming medical bills.

Still, it has consequences, such as damaging your credit score for up to 10 years and having certain assets seized by creditors.


From Headaches to Solutions: Medical Debt Consolidation

Medical debt consolidation can be a helpful tool for many people overwhelmed by medical bills. It allows you to combine your outstanding debts into one loan, with one monthly payment and potentially lower interest rates.

This option may provide significant relief from dealing with multiple creditors and improved and more manageable financial situations.

However, it's essential to consider both the pros and cons before taking action to ensure this decision is an informed and wise financial choice.


Personal Loans for Medical Debt Consolidation

Are you looking for a way to gain more control over your medical debt? 121 Financial Credit Union offers personal loans with fixed interest rates, low minimum payments, and easy payment schedules. You can borrow up to $50,000 to cover all of your costs.

Contact us today, and let us help you put the financial headaches behind you.

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