How to Get Rid of Medical Debt: A Guide
Medical debt is one of the leading causes of financial stress in America. According to
U.S. Census Bureau survey data, 17% of households owe medical debt, and three million Americans owe more than $10,000 of it.1
There’s no one-size-fits-all answer to how to get rid of medical debt, but there are options available to help you reduce and pay it off.
With the right approach, you can get your medical debt under control and start fresh.
Can I Get Medical Debt Forgiven?
Yes, medical debt can be forgiven, but it’s not easy. It can occur through:
- Negotiation with creditors to accept partial payment
- Financial hardship debt reduction required by providers in some states
- Chapter 7 bankruptcy
- A hardship discharge within Chapter 13 bankruptcy
- Random inclusion in a charitable medical debt forgiveness program
Unfortunately, these options often leave you in a tough financial position—for example, declaring chapter 7 or 13 bankruptcy—or the decision isn’t entirely yours to make, leaving you wondering what happens if you can’t pay medical bills.
This may seem like the outcome is grim, regardless of your decision. However, if you’re ready to take serious action and reduce your medical debt, there are ways to create a light at the end of the tunnel. Keep reading to learn how to get help with medical bills and ultimately get rid of medical debt.
8 Ways to Get Rid of Medical Debt
You can find financial assistance by seeking to reduce the amount you owe or by leveraging non-cash resources to pay off the debt in pieces. Let’s discuss ways to lower (and eventually eliminate) medical debt.
#1 Check Billing Accuracy
First, do you really owe what healthcare providers or credit bureau collectors claim? The Consumer Financial Protection Bureau (CFPB) released a report in early 2022 that identified inaccurate and improper medical coding, billing, and collections as a key portion of the $88 billion unpaid medical bills currently found on credit reports.2
Before you sink more time and money into clearing medical debt, review your bills, explanation of benefits (EOB) statements, and medical collections notices. Request itemized lists from all providers and creditors, and look for:
- Accuracy of treatment dates, locations, and healthcare providers
- Duplication or overlap of services between medical care providers or bills
- Denied claims that should have been covered
- Billing for emergency services or products you never signed an agreement to pay for
#2 Negotiate With Providers
The best time to negotiate on medical bills is before they go to collection, but you can also try to leverage a lesser payment with collection agencies. This is a tricky line to walk, but you may consider requesting:
- A payment plan that fits your budget
- Removal of fees and penalties
- Reduction in costs based on your inability to pay the total
From the collection agency perspective, it’s better to acquire partial payment than no payment at all, providing some leeway in your negotiations.
#3 Use a Medical Billing Advocate
If the tips laid out in #1 and #2 seem way beyond your pay grade, that’s okay. You may not be a medical or financial professional, making it difficult to wade through all the data and understand where errors or opportunities exist.
There are professionals that you can seek help from, including:
- Hospital caseworker – A hospital or healthcare system caseworker has a vested interest in getting bills paid, so the same organization that’s after you for money could also help you obtain it. Caseworkers may be able to refer you to government agencies, charities, and other organizations that can provide aid as well as help resolve insurance coverage and billing issues.
- Insurance caseworker – Some insurance companies provide dedicated assistance to members to untangle coverage issues as well as provide referrals for outside aid.
- Medical billing advocate – It can be worth it to pay for the services of a medical debt negotiator or billing advocate. These are individuals with a background in nursing, law, medical insurance, or healthcare administration, and they can play hardball negotiating hospital bills, appealing charges, and representing your rights.
In some cases, these individuals may work on a commission basis—so if they reduce your debt by $900, they may take $300, and you’ll still see $600 in total savings.3
#4 Borrow Against Home Equity
Another way to take advantage of your home equity is to borrow against it.
While a loan secured by property typically comes with a significantly lower interest rate than credit card or other unsecured debt, it also comes with the risk of losing your property. If you can’t repay the loan, the lender may place liens against or ultimately foreclose on your home.
Home equity loan, or second mortgage, characteristics include:
- Amount – You can typically borrow up to 80%–90% of the equity you currently own.
- Requirements – You’ll generally need a credit score of at least 620, a debt-to-income ratio (DTI) no higher than 43% (though it is possible to get a personal loan with high DTI), a solid mortgage payment history, and stable income4 (though it’s possible to get a no income verification home equity loan).
- Interest rates – Your offers will depend on your borrower profile, but the average rate range for home equity loans as of November 2022 is 6.17%–8.26% for a 10-year fixed loan.5 Usually, rates are slightly higher than first mortgages (average 30-year fixed mortgage 7.32%) but lower than unsecured loans.6
Shop carefully for a lender by comparing interest rates and loan terms that work for you. And remember, you’ll also need to pay closing costs and private mortgage insurance if your equity drops below 20%.
#5 Cash-Out Refinance
Instead of taking out a second mortgage (home equity loan), a cash-out refinance vs home equity loan replaces your current mortgage with a new, larger loan that pays off what you still owe on your house plus provides cash back. While the exact calculations differ slightly, the risks and requirements are essentially the same as for home equity loans above.
#6 Increase Your Repayment Amounts
Getting rid of debt you owe more quickly can also mean increasing your monthly repayment amounts. Not so simple if you’re on a tight budget, but consider:
- Reducing small weekly expenses like restaurant and coffee shop spending
- Increasing your salary by applying for new jobs or negotiating with your employer
- Taking on part-time or freelance work
- Selling collectibles, household items, or clothing you no longer need
#7 Seek Credit Counseling
Financial planners will tell you it should be up there with reading, writing, and arithmetic as a basic set of skills taught at school, but the truth is, many adults are set free in the consumer wilderness without understanding the fundamentals of personal finance.
Nonprofit credit counseling agencies provide a source of information and personalized help that may include:
- Establishing and following a budget
- Negotiating with all creditors, not just medical
- A debt reduction plan with a single payment to the agency who then pays your creditors
- Discussing loan consolidation and bankruptcy options
You can receive free resources and workshops, and individual counseling will either be free or at a low cost. Find out more at the Financial Counseling Association of America or the National Foundation for Credit Counseling.7,8
#8 File Bankruptcy
This one is at the bottom of the list for a reason—bankruptcy should always be considered a last-resort option. Filing for bankruptcy results in:
- A major hit to your credit score with a drop usually ranging from 130 and 240 points9
- Inability to apply for a conventional mortgage for two to four years
- Bankruptcy appearing on your credit history for seven to ten years
- Loan offers limited to those with high-interest rates and fees
However, you’ll also obtain:
- Discharge (chapter 7) or help to resolve (chapter 13) unsecured debt and eligible debt
- An end to collection attempts and legal action from creditors
- Relief based on taking action and starting fresh
Debt won’t just hide under the bed—when left untended, it grows into a larger and more expensive problem. If you’re struggling with medical debt and don’t have the cash to repay it, consider different methods available to you to reduce the amount you owe.
- PETERSON-KFF Health System Tracker. The burden of medical debt in the United States. https://www.healthsystemtracker.org/brief/the-burden-of-medical-debt-in-the-united-states/
- Consumer Financial Protection Bureau (CFPB). CFPB Estimates $88 Billion in Medical Bills on Credit Reports. https://www.consumerfinance.gov/about-us/newsroom/cfpb-estimates-88-billion-in-medical-bills-on-credit-reports/
- Investopedia. Medical Debt: What to Do When You Can’t Pay. https://www.investopedia.com/personal-finance/medical-debt-what-do-when-you-cant-pay/
- Bankrate. How to get a home equity loan with bad credit. https://www.bankrate.com/home-equity/home-equity-loan-bad-credit/
- Bankrate. Home equity loan rates for November 2022. https://www.bankrate.com/home-equity/home-equity-loan-rates/
- Bankrate. Compare current mortgage rates for today. https://www.bankrate.com/mortgages/mortgage-rates/
- FCAA. Find A Credit Counselor. https://fcaa.org/find-a-credit-counselor/
- NFCC. Agency Finder. https://www.nfcc.org/agency-finder/
- Debt.org. How Bankruptcy Impacts Your Credit Score & How to Recover. https://www.debt.org/bankruptcy/how-will-filing-bankruptcy-impact-my-credit-score/
- Forbes Advisor. Today’s Cash-Out Refinance Rates. https://www.forbes.com/advisor/mortgages/cash-out-refinance-rates/