Erika Gonzalez

Unlock Technologies staff writer

Ways to pay Medical Expenses and Reduce Medical Debt

A doctor holds a piggy bank full of medical debt money.

Key Takeaways

  • Good news: paid medical collection debt will no longer be included on consumer credit reports as of July.

  • The majority of bills sent to collections is healthcare-related.

  • There are several options to use your home equity to reduce your debt, and possibly raise your credit score in the process.

Medical debt explained

Let's get squared away on the true definition of “medical debt." It's current debt you already have with a medical provider.

If you get a bill from a provider and use your credit card to pay, it is NOT “medical debt”; it just becomes “credit card debt.” If you pay your medical bills with funds from your home equity or won a small lottery, you’ve paid expenses, not “medical debt.”

If you have true medical debt – expenses from a provider, directly, you can’t pay, which are overdue – then, you could use funds from a home equity line of credit or a home equity agreement to pay that down/off. We'll explain more in a moment.

Consumers struggling with this issue recently received some good news. On July 1, 2022, the three major credit bureaus announced that paid medical collection debt would no longer be included on consumer credit reports. In the past, medical debt – even after it had been paid off – could linger on records for seven years.

Another positive change: the bureaus won’t add medical bills in collection to a credit report unless they’ve been unpaid for a year – an increase from their previous policy of adding that debt to a credit file after six months. And starting in 2023, the credit reporting agencies will stop reporting any medical debt less than $500.

Fifty-eight percent of the bills in collection on credit reports are healthcare related, according to the Consumer Financial Protection Bureau (CFPB). The agency’s research also shows that half of all Americans who have medical debt listed on their credit reports have no other debts.

A graph displaying medical debt estimates in the US.

Ways to reduce expenses

Getting a handle on debt of all kinds can be challenging, especially for those whose ability to work and income might be impacted due to health issues. Here are some payment options to consider for addressing medical debt.

  • Credit cards. If you can pay your balance in full, then putting your current medical bills on a credit card on a temporary basis might make sense. Otherwise, you’re simply shifting debt and accruing interest that could take years to pay off, costing you more in the long run. And, if you can continue to struggle to make payments, you could find yourself facing late payments (which adds to your overall debt) and risk damaging your credit score.

  • Home equity lines of credit or home equity loans. Both home equity lines of credit and home equity loans allow you to borrow against the equity you have in your home to access much-needed cash. A home equity loan carries a fixed interest rate and offers a lump sum upfront, which you pay back over a set term. A home equity line of credit or HELOC, is a revolving line of credit, which you can tap as needed over a certain period – usually 10 years.

Most HELOCs have a variable interest rate (although some fixed-rate HELOCs are available), which means your payments may fluctuate over time. Both home equity loans and HELOCs can be valuable financial tools for consolidating debt. However, you’ll still be required to make monthly payments and qualifying can sometimes be a challenge, particularly if you have poor credit or if your debts far outweigh your income. With interest rates rising across the board, you’ll also pay more to borrow against your home than you did in years’ past.

-Home equity agreement. With a home equity agreement (HEA), you sell a fraction of your home’s equity for immediate cash. While terms vary based on the HEA provider, Unlock’s HEA provides consumers with anywhere from $30,000 to $500,000, depending on your home’s value. You have 10 years to use that funding – interest free. At the end of the term, you can either buy back your equity or sell the property. You may also choose to buy back your equity sooner. There are no monthly payments with an Unlock HEA, no income requirements and you can qualify with a credit score as low as 500.

Using an HEA from Unlock Technologies to access your home’s equity can serve as an easy, interest-free, cost-effective way to deal with medical debt and potentially improve your credit score. Learn more at Unlock.com.