While consumer healthcare may have been somewhat improved by the passage of Obamacare (the Patient Protection and Affordable Care Act a decade ago, this legislation didn’t fully extend health insurance to every American. In fact, the Kaiser Family Foundation (KFF) reports in 2019 that almost 29 million non-elderly Americans were without a health insurance plan.
Even those who do have health insurance can face some shockingly high costs in terms of annual deductibles and copayments. In 2021, for example, plans offered on the national Healthcare.gov website come with maximum out-of-pocket limits of $17,100 for families and $8,550 for individuals. That’s a lot of money for someone who actually has health insurance to begin with, especially with the extra difficulty COVID-19 has added to managing expenses.
If you don’t have money in the bank or in a Health Savings Account (HSA) to cover medical expenses, it’s possible you’ll be stuck charging medical expenses on a credit card. While it’s better to have an emergency fund for surprise medical expenses, paying with credit isn’t the end of the world.
Putting aside the interest rate concerns, most credit cards aren’t designed to earn rewards on medical purchases. However, some issuers have adapted to reward you for spending that has increased due to COVID-19, like groceries and food delivery. These shortcomings mean your cards defining feature would probably be to pay off your medical debt as quickly as possible, so considering a balance transfer card or a card with lengthy zero-interest periods could minimize the risks of using a credit card.
Before you sign up for a credit card to pay medical bills, you should be aware of potential downsides. For starters, the average credit card in the United States comes with an annual percentage rate (“APR” or interest rate) of almost 16 percent. If you charge medical expenses to a credit card and take a long time to pay them off, the interest charges you’ll pay could be exorbitant.
Another downside of paying medical expenses with a credit card is the fact that you’ll no longer be in a position to negotiate with medical providers. Keep in mind that some hospitals might offer a discount if you pay your entire bill in full, or they may also offer long-term payment plans without interest. If you pay with a credit card and they get their money, your medical debt becomes your problem.
If you need to carry medical debt for the long-term, a personal loan might be the better option. If you’re carrying a balance on a credit card for medical expenses, and you don’t have a high-income earner responsible for paying the bills – like an employed spouse – it might be wise to look at a personal loan as an alternative. Personal loans are usually offered by banks, credit unions or other financial institutions.
Personal loans come with low-interest rates (or zero percent introductory offers), and you’ll get a fixed monthly payment and a fixed repayment timeline that will let you know exactly when you’ll be debt-free. It is possible to use a credit card for medical expenses, but you must be mindful of the tradeoffs. In many instances, this is accurate. However, if your medical bills exceed a certain level – say $5,000 or so – you may find yourself with a collections account on your credit report if you don’t pay the account in full and on time. This is not helpful to your credit score.
Always remember, the credit card companies may charge consumers up to 25+% interest on unpaid balances, plus late fees and penalties.
