06-16Health care doesn’t come cheap these days and while insurance is now mandatory, it doesn’t always cover every expense. If you’re left with some substantial medical bills following a major surgery or serious illness, figuring out how to pay for it can be overwhelming. Slapping it all on a credit card just to stop the calls from doctor’s offices or collection agencies is tempting but it shouldn’t be your first choice. Here’s a look at why pulling out the plastic right away is a bad idea.

1. You can’t negotiate once you’ve paid medical bills

If you’ve got a large medical bill, accepting the amount due at face value is a big mistake. Before you pay anything, you should contact both your health insurance provider and your doctor’s office or the hospital to see if any of the charges can be haggled down. Even if you’re only getting a few dollars shaved off the bill, that’s less money you’re going to have to pay in the long run.

The first step in negotiating is asking for an itemized statement of all the charges. Once you have it, you’ll need to go over it carefully to look for errors or charges that seem unusually high. Using a site like Healthcare Blue Book, you can look up each expense to see if the price is fair and comparable to what other doctors are charging in your area. You also need to be on the lookout for charges for services or medications that you didn’t receive.

At the same time, you should be comparing what your insurer is willing to pay to what’s covered under your policy. If you find something that you know is covered but is being billed to you directly, don’t waste any time in calling up the insurance company to make sure that you’re not the one who bears the cost. If you wait to do any of these things until after you’ve paid the bill with a credit card, the odds are good that you’re going to have a much harder time recouping any of the money you’ve already spent.

2. Payment plans for medical bills are typically cheaper

Whether you owe a few hundred dollars or a few thousand, most doctors and hospitals are willing to work with you to establish a payment plan. In most cases, these plans are interest-free and you’ll have an extended time to pay so there’s not an unnecessary strain on your budget.

When you’re putting a medical bill on a credit card, you’re going to pay interest on it until the balance is paid off. Unless you’re able to make extra payments beyond the minimum each month, that’s just going to make the debt more expensive. You may be able to sidestep the interest temporarily by using a card with a 0 percent interest rate but these promotions don’t last forever. If the 0 percent rate is only good for a certain amount of time and you’re not able to pay the balance off by the deadline, interest will apply on whatever you still owe.

If you’re in a particularly hard spot financially, some hospitals also offer charity care programs that are worth looking into. Typically, these plans only apply to people who are at the lower end of the income spectrum but if you qualify, you may be able to have your bill significantly reduced or eliminated altogether. Once the bill has been transferred to a credit card, your creditor’s going to expect you to pay, regardless of whatever may be going on with your finances.

3. It may put your credit at risk

A good credit score is essential, especially if you’re planning on making a major purchase like a car or a new home. While your payment history accounts for the biggest piece of your credit score pie, the balances you’re carrying and the different types of debt you owe also comes into play.

Your credit utilization ratio is the amount you owe versus how much credit you have total. Most financial experts recommend keeping this ratio at 30 percent or less. If you have several thousand dollars worth of medical debt, shifting it onto a credit card can eat away at your available credit and cause your utilization ratio to go up. The end result is that your score suffers and you look more financially overburdened than you really are to lenders.

While allowing a medical bill go to collections isn’t an ideal choice, it may be less damaging to your score than maxing out your credit cards to cover the cost if you’re strapped for cash. Thanks to some changes in the FICO scoring model, medical bills that have been sold to a collection agency don’t have as much of a negative impact as they previously did if you eventually pay them off.

4. You don’t have any other safety net

Personal finance experts agree that a healthy emergency fund is a must but studies show that about 1 in 4 people have no emergency savings at all. When the car breaks down or you get temporarily laid off, having money set aside keeps you swimming instead of sinking but what do you do when you don’t have any extra cash?

In that situation, turning to a credit card to cover the gap isn’t the perfect solution but it may be the only thing that keeps your lights on and a roof over your head. If you’ve maxed out all of your credit cards because you’ve used them to pay off your medical bills, however, your options for covering your other expenses suddenly become much narrower.

You could take out a bank loan but if your credit utilization ratio isn’t that great, getting approved can be tough. Borrowing money from friends or family is an alternative but not everyone has that kind of support system in place. That leaves either selling your stuff on eBay or taking out a payday or title loan, which is the easiest way to set yourself on the path towards financial disaster.

If your credit card serves as your emergency fund in a pinch, you’ll benefit more from leaving it untouched until you actually need it. Setting your medical bills up on a reasonable payment plan is the better choice, especially if it leaves you with a few extra dollars that you can use to save for rainy days.

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