If your physician, clinic, or alternative healthcare provider does not offer a plan to pay medical bills over time, talk to your bank or credit union. Hardship repayment plans are frequently available to those with previously acceptable credit standing and identifiable assets. If you owe large sums, you or your financial adviser might ask that late fees and accrued interest charges be waived or reduced. Keep in mind you will most likely need to submit a detailed budget plan, but demonstrating a willingness to pay over time is a point in your favor.
A medical credit card can offer peace of mind while allowing you to pay off large bills over time. Essentially, it’s an unsecured loan used to finance a medical procedure such as lasik eye surgery, bariatric procedures, or major dental work. There are a number of providers, and you should shop in advance for a plan that suits your needs. Some “bad credit” medical payment cards are available at low interest rates. It’s important to read the fine print before agreeing to the terms.
If you have a personal line of credit, you can use it to pay medical bills. Personal loans for medical expenses can be an option for a planned procedure or to consolidate medical bills. But they are expensive, with interest rates ranging from six to 36 percent. If you are planning cosmetic surgery or facing expensive elective surgery, it is wise to explore options such as provider payment plans or medical credit cards before considering such a loan. The lower interest rates are available only to those with excellent credit history. Varying terms are available from different companies, but all include some type of origination or qualification fee and a detailed application, much like a home mortgage. A zero interest credit card, if you can qualify for that introductory rate, can be a possible source of funds. But you’ll want to pay it off before interest charges are levied, usually within six or 12 months.
Hardship withdrawals are permitted from a 401K for medical expenses. But the amount may be limited only to what you, as an employee, have contributed. Under some plans, however, employers allow you to request a loan from your retirement account and it’s not necessary to specify a reason. For payment of medical debt, dipping into retirement funds can be a viable option. It’s important to remember that early withdrawals, even under the hardship provision, are still considered income. This means they will be subject to state and local taxation, and an additional IRS penalty of 10 percent. There are other legal stipulations and requirements that you will want to check before you dip into your 401K.
Pulling funds out of other types of IRA accounts is permissible under certain circumstances. In general, if medical expenses total more than 7.5 percent of adjusted gross income, the 10 percent early withdrawal penalty does not apply, even if you are under age 59 1/2. Medical expense exemptions apply if you are temporarily unemployed and need funds to pay for continuing medical insurance, or if an illness or injury results in permanent disability. Check all the rules to evaluate the pros and cons of raiding retirement funds.
A Home Equity Line of Credit (HELOC) is a resource for paying unexpected medical debt in a lump sum. This gives you time to repay the secured loan over time and under reasonable terms. These terms can be based on the amount of equity you have built up and overall financial stability. A HELOC is, in effect, a second mortgage on your home. So using funds to pay off medical debt might jeopardize your home security without a solid budget plan to repay the loan. Also consider required closing costs and the effective interest rate charged.