One popular way people deal with medical debt is through consolidation. If you are struggling, medical debt consolidation is one way to attack it but it does have its downsides. Consolidation comes through either a financial institution loan or through the use of a debt management company. Like any other debt consolidation method, there are pluses and minuses – costs and benefits which you need to understand.
Consolidation Through A Loan
One type of medical consolidation is achieved through the use of a bank loan. The loan can be secured or have collateral behind it – in which that collateral could be your house or other assets you have. A secured loan is a much better loan than an unsecured loan. An unsecured loan is a loan in which the bank has no collateral in case you fail to repay. Therefore, a secured loan (refinance, home equity, loan against your 401k etc) usually carriers a much better interest rate. In both cases, your credit score is a huge factor. The lower your credit score, the more likely you are to obtain a higher interest rate. Taking out a loan is only advisable if the interest rate you can obtain on the loan is lower than your medical debt interest rate, it prevents your credit score from being degraded, and or of it prevents you from filing for bankruptcy.
A debt consolidation loan is not beneficial if it is at a higher interest rate than your current medical debt interest rate. However, it can be beneficial in lowering your monthly payments so they are more manageable. However, realize a loan usually results in your paying more principal in the long run because your payments are lower. This type of consolidation can be difficult to obtain although usually a secured loan is much easier to obtain then a non-secured loan.
Consolidation Through Debt Relief Company
Another way to consolidate your medical debt debt is by signing up with a Credit Counseling or Debt Relief Company. These companies can negotiate with your creditors (hospital, doctor’s office, or collection agency) to potentially settle for a lower amount and set you up with reasonable payment plans or payment plan you can afford. If you are the type of person that feels better with assistance then sign up for a “Medical Debt Consultation” at the top to see if you qualify. However, you can also contact your creditors yourself and negotiate yourself (interest rates and payment plan). Make sure when you pursue assistance, that you ensure your credit score will not be negatively affected. You want to reduce your interest rate (if any) and balance but with reporting to the credit bureau as “paid in full” or “paid as agreed” instead of “settled.” In other words, talk to your credit counseling or debt management company that you want options that don’t require your credit being degraded any further.
In summary, debt consolidation, when it matches your needs, can be a viable option for medical debt. Always compare your interest rate with a bank loan, and if you are unable to obtain a loan work with a credit counselor or debt management company. Always consider the consequences and benefits no matter what you do. Moreover, ask questions in whatever consolidation method you select.
