Statistics show consumers are burdened with ever-increasing credit card debt, and a new survey helps explain why.
A third of consumers who carry credit card debt are doing so not because they’re taking expensive vacations or eating out every night. A survey by CompareCards shows these millions of consumers are loaded down with medical bills they put on their credit cards.
What’s more concerning is that almost 10 percent of those who paid medical bills with credit cards owe at least $10,000. At a credit card’s high double-digit interest rate, those bills will take years to pay.
Not surprisingly, 30 percent of the consumers who paid a medical bill with a credit card regret doing so. But 60 percent say they would not have been able to pay the bill without resorting to plastic.
Wrecking financial lives
As early as 2001, huge medical bills were wrecking consumers’ financial lives. A Harvard study that year found illness and medical bills caused half of the 1,458,000 personal bankruptcies in the U.S.
The study estimated that medical bankruptcies affect about 2 million Americans annually -- counting debtors and their dependents, including about 700,000 children. Surprisingly, most of those bankrupted by illness had health insurance.
By 2009, a second Harvard study found health problems caused 60 percent of bankruptcies, a 50 percent increase over the results of the 2001 study. Putting a huge medical bill on a credit card with sky-high interest rates could have been a contributing factor.
Credit card balances have gotten much larger in the last decade following the financial crisis of 2009. Credit card debt in the U.S. surpassed $1.03 trillion in the third quarter of this year, according to the Federal Reserve.
What to do
When presented with a large medical bill, try to negotiate with your health care provider before paying the full bill with a credit card. Even if the provider doesn’t advertise an interest-free payment plan, it may have one. That will not only save lots of money, it will allow you to pay the debt much faster.
Providers may also drastically reduce the amount of the bill if they are assured of prompt payment. In that case, your credit card could be a valuable tool.
Providers like to get paid quickly. Turning your bill over to a collection agency is costly. If you offer to pay immediately with your credit card if the final bill is significantly reduced, you might be surprised at how much they’ll come down. Just be sure that the bill you agree to pay is marked as the final bill and not an installment.
Once the payment is made, you can apply for a personal loan to pay the credit card bill. A personal loan is unsecured, just like a credit card, but the interest rate is often lower.
If you’ve already paid a big medical bill with a high-interest credit card, consider applying for a balance transfer card that offers 0 percent interest for at least a year. Pay as much of the bill as possible during that introductory period so that you’ll pay less in interest once the introductory period ends.