Imagine sitting in your doctor’s or dentist’s office, just minutes from the treatment for the pain that brought you in, when you find out that the only way you can obtain the treatment you need is by paying out of pocket. But not to worry, they tell you. They have a credit card or a line of credit that they can offer you made just for situations like this.
In less than five minutes you’ve been through a roller coaster of emotions. You were counting on insurance but without enough coverage you’re suddenly faced with the unexpected reality of going into debt in exchange for good health. When it’s down to the line, which one do you choose – money or health? You decide to make the obvious choice to put your health first and everyone leaves happy. But now what?
The Rise of Medical Credit Cards
A perfect storm of a down economy, rising healthcare costs, and unpaid medical bills led to the current prevalence of medical credit cards. Many doctors saw this as a way to encourage patients to receive care they would otherwise forego. Many patients used them as a budgeting tool to receive the care they knew they needed. Seems like a perfect solution, right?
Not exactly. While the idea of using credit to pay for costly medical bills isn’t inherently predatory, the way the cards are being marketed is. Many patients feel pressured into taking on the card when they assumed insurance would cover a good portion of the costs. The pressure is intensified by the need to make a quick decision while sitting in the doctor’s office. Still others don’t even realize that they signed up for a card until they receive notice that they missed a payment. Before you make a decision on whether or not to take on a medical credit card, it’s important to understand the potential negative side effects.
The Negative Side Effects of Medical Credit Cards
Not all doctors are out to get their patients with these medical credit cards. In fact, some suspend the practice after learning the financial repercussions these cards have on their patients. However, it’s important to know that the doctors who do offer the cards receive pay right away (as opposed to waiting for an insurance company to pay them) and a kick-back for promoting the card. That doesn’t mean that your doctor is trying to harm your finances, but it does show that they may not have your best interest in mind – or they may not simply understand the potential financial repercussions.
The negative side effects of a medical credit card come down to the financing. Most medical credit cards come with a zero percent interest rate that will expire somewhere between six months and two years. However, once that introductory period ends, the interest could soar up to 30% or more. What’s worse – the new interest rate in some cases is applied retroactively, thus penalizing you even more for the past months you’ve had a balance on the card.
Another side effect is higher than average penalties for late payments. Not only do these cards charge a fee for late payments but the interest rates could go up as well. Again, these new rates can be applied retroactively. One late payment can sabotage even the best progress on paying off a medical credit card.
How to Protect Your Finances
Before you take on a medical credit card, first consider the level of importance of the treatment. Is this something that you need to protect your long-term health? Or is it something that will make you more comfortable but will be just as beneficial six months from now as now? If you decide that the treatment is more of a “nice to have” than a “need to have,” then create a new savings account and new budget so you can save enough to pay out of pocket for the treatment later. If the treatment is a “need to have,” then ask your medical provider if they’ll consider setting up a payment plan with them directly. This will allow you to receive the care you need without taking on risky debt. The answer will vary depending on your provider but it certainly doesn’t hurt to ask!
If you do end up taking on a medical credit card (or are working to pay one off now) then the best thing you can do is to pay over the minimum payments – especially if you have an introductory period of zero percent interest. If you need help understanding how to pay the card off before the introductory rate expires, use a debt payoff calculator like ReadyForZero’s to see what you’ll need to pay each month.
You may find the cost to pay the card off before the introductory period expires to be more than you can afford. If this happens and you find yourself with a balance when the new interest rate kicks in, then start shopping around for better rates. You may be able to use a credit card balance transfer or a peer to peer loan at a lower interest rate that will charge you less in interest. While taking on debt to pay off debt isn’t ideal, obtaining a lower interest rate will allow more of your money to go to the principal balance so you can pay the debt off faster.
Having to decide between your finances and health is scary. Both affect your future and making a decision under that kind of pressure could lead to negative consequences later. That’s why it’s so important to understand how you can optimize for the best scenario possible. Avoid these cards at all costs except when necessary for your long-term health. If you truly have no other options, follow these steps to ensure that the medical card doesn’t cost you more in the long run.
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