Many people across the world struggle to pay their medical bills on time. In fact, a CNBC report found that nearly 2 million people will be affected by unpaid medical bills. During situations like this, people resort to charging their medical bills to their credit card. In that moment it seems like a great way to appease their medical providers.
However, this move can have adverse effects on your financial well-being. One, it severely affects your credit. Two, you end up paying more than you were supposed to. Use your card to get more in returns, so that you can manage your finances in a better way.
It can be extremely tempting to use your credit card, especially if you have a higher limit. But it comes at a cost. Below are 5 reasons why your credit card should be the last option to clear your medical bills.
1. Higher Interest Rates
When you have a huge medical bill to clear, your medical provider may give you options (depending on your geographical location) like no-interest or low-interest payment plans. This is provided, when you find it difficult to clear the whole amount immediately. These plans typically have lower interest rates compared to credit cards, so you don’t end up paying more than you should.
Charging a bill to your credit card means paying a higher interest amount on the money you owe. And if you miss a payment, your interest rates will keep increasing. Soon, you’ll find yourself in a world of debt that’s impossible to get out of.
It’s good to approach your medical provider and request them for a payment plan, especially if can’t pay the whole amount.
2. Wasting Available Credit
If you want a good credit report and credit score, you need to maintain your credit utilization ratio. Using your credit card for medical bills means you end up using a huge chunk of your available credit. This can be viewed as a credit risk by your provider as it raises a flag. Eventually, this could also negatively affect your score.
When you opt for a payment plan, you won’t have to worry about it reflecting in your credit report. This way, you can keep the available credit for any other emergencies that may pop up.
3. Lower Credit Scores
Medical bills can sometimes rack up to a high amount. Charging it to your credit card means using available credit, which can lead to high credit card debt. Now, there may be several reasons why you’re facing troubles making your repayments in time.
The low credit utilisation ratio, the debt, the inconsistent repayments—all of this begins to reflect in your credit report, which eventually lowers your credit score. With a low credit score, your applications for other financial products may get rejected.
It is best to have medical debt in collections rather than your credit card because those debts occasionally reflect on your credit report. Even if they do, the chances of it affecting your credit score are lower compared to credit card debt.
4. Missing Out on Discounts or Financial Aid
While charging your bills to your credit card may seem like an easy way out, there are several repercussions. However, you may be missing out on incredible discounts or financial aid if you decide to go down the card route.
For instance, many hospitals offer aid for those who are financially not that sound. Some medical providers even go to the extent of offering you discounts on their services. What you should do is talk to your medical provider and ask them for various options. You can also ask them for discounts if you don’t have medical insurance.
5. Less Flexibility
Charging your bill to your credit card means you no longer enjoy a flexible repayment period. To avoid high interest rates and debt, you have to keep up with the monthly repayments consistently. You can’t just settle the monthly bill with the minimum amount; you have to pay a little more. And you can’t even negotiate these terms with your credit card provider.
However, opting for a payment plan from your medical provider changes the game. Besides getting a cost negotiation, you can also negotiate the time period. If you’re left with a massive bill after a surgery, you can always go ahead and ask for assistance.
Sometimes, if you’re lucky, you’re provider will be willing to extend your repayment schedule for a couple of months with no interest.
6. No Backup Option
Your credit card is great for short-term purchases and immediate emergencies. When you use up all the available credit, you’re left with no backup option. So, if you need to purchase something urgently, you’ll have to dip into your savings.
Now, the only time you can go ahead and swipe your credit card is if you have the finances to clear the bill immediately. But that won’t always be the case.
That’s why, it’s advised to do your research before you go ahead with any medical procedure. Check if the hospital or medical provider has payment plans or even extended repayment plans. See if they have the option of financial aid, especially if you’re expecting a hefty bill. The reason these plans aren’t public knowledge is because they want their money immediately.
Before you make any medical related decision, understand the downsides and the upsides. This way, you won’t give your credit card right away to clear those pesky medical bills.
However, it’s good to have a credit card for small emergencies. Most cards come with great offers as well. You can use comparison websites or tools like BBazaar.my to search and compare a wide variety of cards.