958. Laura explains what to do and not do if you can’t pay medical debt, and strategies for managing it wisely
958. Laura explains what to do and not do if you can’t pay medical debt, and strategies for managing it wisely
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Welcome back to episode 958 of Money Girl–I appreciate you downloading the show! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, my Substack newsletter. Subscribers automatically receive my Money Success Toolkit, which includes the exact templates I use to manage my finances.
You can learn more, ask questions, and sign up for the Money Stack at LauraDAdams.com. Or leave a voice message with your question or comment by calling 302-364-0308. I'd love to feature your question on Finance Friday, our weekly Q&A, bonus edition of the show!
Today, I’ll be discussing medical debt, which is one of the biggest financial burdens in the U.S. Approximately 40% of American households are grappling with some type of healthcare debt. According to the Consumer Financial Protection Bureau, at least $88 billion of outstanding medical bills are currently in collections.
This post will review what to do if you can’t pay a medical bill, how medical debt affects your credit, and strategies for managing healthcare debt wisely.
What's happening with medical debt regulations?
There have been numerous efforts to limit medical bills from appearing on credit reports. Historically, medical bills differ from other types of debt due to factors such as the complexity and high cost of healthcare, confusing billing practices, patients being underinsured or uninsured, and a lack of price transparency for services. Plus, health challenges are unpredictable; patients don’t choose to have medical debt.
A few years ago, the nation’s largest credit rating agencies (Equifax, Experian, and TransUnion) decided to remove medical bills with an initial balance of $500 or less from their reports, along with old bills that were repaid. Typically, an unpaid bill remains on your credit reports for seven years, even after you pay it. So, having a delinquent medical bill removed from your credit reports is beneficial for your credit scores.
In addition, the time before an unpaid medical bill shows up on your credit report is longer than for other types of debt. The grace period was initially increased from several months to six months and subsequently extended to one year. That gives you more time to deal with any errors, like receiving a bill that should have been covered by health insurance or that has mistakes, before it appears in your credit history.
Another milestone occurred in January 2025, before the Biden administration left office. They attempted to ban credit agencies from including medical debt altogether on most consumer credit reports starting in March 2025.
Due to the many weaknesses in America’s healthcare system, some experts believe that medical debt has little to do with predicting your creditworthiness and shouldn’t be a factor in credit rating models. In fact, some creditors, such as Fannie Mae and Freddie Mac, choose not to include medical debt in their mortgage loan underwriting process.
However, after the Trump administration took office in January 2025, it placed Biden’s medical debt protections on hold. Additionally, they’ve frozen all activities of the Consumer Financial Protection Bureau, which has been working to safeguard consumers from the negative consequences of medical debt.
To sum up, we’ve seen a little progress in helping consumers avoid the devastating financial challenges of medical debt, but not nearly enough. As I mentioned, if you have an unpaid medical bill, it can appear on your credit reports one year after the date you originally became delinquent. And, instead of remaining on your reports for up to seven years, a past due medical bill disappears completely if you pay it off in full.
RELATED: Tips to minimize credit damage after a late payment
7 do and don’ts for managing medical debt
Here are seven tips for managing medical bills effectively.
1. Don’t ignore it.
Pretending a medical bill doesn’t exist won’t help your finances in the long run. If you don’t pay a bill, the provider will likely send it to a collection agency, which will report your delinquency to the credit bureaus. Additionally, collectors can be overly aggressive in their contact attempts, which can cause even more stress.
To learn more about the regulations that collectors must follow and the statute of limitations on debt, don’t miss episode 814, How to Stay Safe from Zombie Debt.
2. Do check for errors.
When you receive a medical bill, always review it carefully for errors. I know it can be challenging to understand a lengthy bill, but make sure you receive a detailed, itemized statement that lists every charge.
If you don’t understand something, see duplicates, incorrect dates, or services you didn’t receive, call the provider’s billing department and ask for clarification. If you disagree with charges on a medical bill or what your insurance covers, you have the right to an appeal with your health insurer.
3. Do ask about financial assistance.
Many providers will negotiate what you owe, especially if you don’t have health insurance or can pay a lump sum upfront. Getting a 10% to 20% discount is a reasonable reduction when you’re responsible for a big healthcare bill.
Consider asking your provider what the Medicare reimbursement rate is for the services you received. That’s usually a provider’s bottom line, and they may accept an amount slightly higher from uninsured or self-paying patients.
Hospitals often have charity programs or will allow you to pay in installments with no interest over a period of at least one year. The sooner you contact a provider about a solution, the more favorably they may be able to treat you. If you don’t ask about discounts or longer repayment terms, you may never know what help is available.
4. Do know your rights.
A federal law called the No Surprises Act protects individuals with health insurance from paying more for out-of-network providers in certain situations, such as emergencies. It ensures you only pay in-network cost sharing when you likely didn’t have an option to use an in-network provider.
Plus, if you don’t have health insurance, the law says you should receive a good-faith estimate of costs and services. You’re also entitled to a dispute resolution process if the bill significantly exceeds your estimate. Other avenues for filing complaints may include your state's attorney general and insurance department.
5. Don’t pay on credit.
While using a credit card, medical credit card, or loan to eliminate a healthcare bill may seem wise, it’s generally a bad idea. You convert a debt with no interest and a limited impact on your credit into a high-interest debt that can negatively affect your credit and financial health for years to come.
Consumers have more rights with medical debt, and creditors are more likely to give you the benefit of the doubt than with credit card debt. Plus, once you pay a medical bill with a credit card or loan, you lose all power to negotiate it with your provider.
RELATED: How to pay off credit card debt faster
6. Do prioritize your debts.
If you have multiple debts, your best plan is to focus on paying them off in order of highest to lowest interest rate. In other words, if you receive a no-interest payment plan for a medical debt, there’s no need to pay it off early or faster than other debts you have that likely charge high interest rates.
7. Do seek professional guidance.
If you feel overwhelmed by your debt, consider seeking help from a non-profit credit counseling agency or a patient advocate to help you understand your options and negotiate on your behalf. Don’t miss my most recent podcast on this topic, Conquer Debt–How Nonprofit Credit Counseling Works.
Using a health savings account (HSA)
If you have a qualified, high-deductible health plan, you’re eligible to contribute to a health savings account or HSA. It’s a tax-advantaged medical savings account that allows you to pay a wide range of qualified healthcare expenses, like medical, dental, vision, and hearing care, entirely tax-free.
While having money in an HSA doesn’t make a medical debt disappear, it certainly reduces the cost. Depending on your income and average tax rate, paying for qualified healthcare expenses using tax-free HSA funds could equate to a discount of 20%, 25%, or more.
Your original HSA contributions and earnings are tax-free when you withdraw them for a wide range of IRS-approved healthcare expenses, whether your insurer covers them or not. However, if you use an HSA for non-qualified expenses, you must pay income taxes plus a hefty 20% penalty on withdrawn amounts.
READ ALSO: 4 common HSA mistakes and how to correct them
For 2025, you can contribute up to $4,300 to an HSA if you have individual health coverage or $8,550 with a family plan. If you're over 55, you can contribute an additional $1,000 catch-up contribution. For 2026, the HSA contribution limits will increase slightly.
You can make tax-deductible HSA contributions anytime during the year, even up to April 15 for the previous tax year. If you’re eligible for an HSA, funding it as aggressively as possible is an excellent way to prepare for an unexpected medical bill and hopefully reduce the stress of healthcare challenges.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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