Understanding Medical Credit Cards: Risks and Alternatives
At O1ne Mortgage, we prioritize consumer education on credit and finance. We aim to provide you with the best information to make informed decisions. If you have any mortgage service needs, feel free to call us at 213-732-3074. In this blog, we will explore the concept of medical credit cards, the risks associated with them, and some better alternatives.
What Is a Medical Credit Card?
A medical credit card is a specialized credit card designed to cover health care expenses such as hospital stays, dental care, or cosmetic surgery. These cards are often promoted by health care providers as a convenient payment option. You can typically apply for a medical credit card at your provider’s office and get approved on the spot, or you can apply online.
Some medical credit cards are limited to specific networks or types of health care providers, such as dentists, dermatologists, and plastic surgeons. Like other credit cards, medical credit cards offer revolving credit up to a certain limit, which can vary based on the card, provider, and type of medical care. Factors such as your income, debt-to-income ratio (DTI), credit history, and credit score also influence your credit limit.
Medical credit cards often come with a low or 0% introductory annual percentage rate (APR) for a limited time. If you repay your balance within this period, you won’t incur any interest. However, once the promotional period ends, the standard purchase APR applies, which can vary.
Risks of Using a Medical Credit Card
While medical credit cards may seem like a convenient solution for health care expenses, they come with several risks that you should consider:
High APR
Medical credit cards generally have higher APRs compared to standard credit cards. As of May 2023, the average credit card APR was 22.16%, while the average medical credit card APR was 26.99%, according to the Consumer Finance Protection Bureau (CFPB). Unlike regular credit cards, most medical credit cards do not consider your credit score when determining your APR, meaning you’ll pay the same rate regardless of your creditworthiness.
Deferred Interest
A 0% introductory APR may sound appealing, but medical credit cards typically charge deferred interest. If you haven’t paid off the card by the end of the promotional period, you’ll be charged interest on the entire amount financed, not just the outstanding balance.
Potential Harm to Your Credit
Medical debt is treated differently from other types of debt. Generally, medical debt isn’t reported to credit bureaus unless your account goes to collections, which can happen after 60, 90, or even 120 days of being past due. Even then, credit bureaus give you 365 days to resolve the issue before the unpaid debt appears on your credit history. Medical bills under $500 never show up on your credit report. Newer credit scoring models like FICO® Score 9 and VantageScore® 3.0 and 4.0 also weigh medical collections less heavily than other collection accounts.
However, paying medical bills with a medical credit card eliminates these accommodations. Once you use a medical credit card, the debt is considered credit card debt, which can have a more significant negative impact on your credit score. A delinquent payment can appear on your credit report if you’re 30 days late, immediately affecting your credit score.
Additionally, once you’ve paid a medical bill with a credit card, it can be challenging to negotiate the bill down or receive financial assistance that you might be entitled to. Concerns about the potential downsides of medical credit cards have led several federal agencies to gather information about their practices to explore whether adequate consumer protections exist.
Alternatives to Using a Medical Credit Card
Instead of using a medical credit card, consider these alternatives:
Ask to Be Billed for Your Treatment
Request to be billed for your treatment and sort out the costs later. This gives you time to figure out how to pay the bill without losing the special protections for medical debt.
Negotiate with Your Health Care Provider
Ask your health care provider for a reduced rate, especially if you pay out of pocket instead of using health insurance. Spreading payments over time can be easier on your budget than paying a lump sum.
Ask About Income-Driven Payment Plans
Health care providers may offer hardship plans that base your monthly payments on your income. In some cases, providers may even reduce the total amount you owe. Ensure the payment plan agreement is with the health care provider itself, as some “payment plans” are actually third-party medical credit cards or loans.
Seek Financial Assistance
Nonprofit hospitals are legally required to provide financial assistance (or charity care) for low-income patients. Other providers may offer charity care as well. You may also qualify for financial assistance from Medicaid, local nonprofits, religious organizations, and local or state programs.
Consider a Personal Loan
Personal loans from banks, credit unions, and online marketplaces generally have lower APRs than medical credit cards. As of May 2023, the average APR for a 24-month personal loan was 11.48%, according to the Federal Reserve. Use the personal loan to pay off your medical debt, then repay the loan in fixed monthly installments. Avoid loans secured by your home, as you risk losing it if you can’t make the payments.
Apply for a Low- or Zero-Interest Credit Card
If you have good to excellent credit, you may qualify for a new credit card with an introductory 0% APR for a limited time, typically 12 to 21 months. If you have a balance when the promotional period ends, it accrues interest at the card’s standard APR going forward, but there’s generally no retroactive deferred interest to worry about. If the card’s standard APR is lower than that of a medical credit card, you’ll save even more on interest.
The Bottom Line
While medical credit cards may seem like a convenient solution, they can pose significant risks to your financial health. The next time you receive a large medical bill, remain calm and take the time to explore your payment options. If you’re concerned that an unpaid medical bill could be hurting your credit score, consider signing up for free credit monitoring services to keep tabs on your credit report and gain peace of mind.
For any mortgage service needs, don’t hesitate to call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.
