Broadcast Retirement Network’s Jeffrey Snyder discusses how to pay down medical debt with Bankrate’s Ted Rossman.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Ted Rossman of Bankrate. Ted, great to see you. Thanks for joining us this morning.
My pleasure. Thanks for having me. Ted, a little bit of a different topic than we have talked with you about.
Typically, when we talk, we talk about managing credit card debt. Today, we’re going to talk about medical debt. My first question is how big of an issue is medical debt for Americans?
Ted Rossman, Bankrate
It’s a big deal. The Consumer Financial Protection Bureau says that about one in five Americans have medical debt in collections, which is pretty staggering. In total, we’re talking about close to a hundred billion dollars.
It’s believed that if we include all medical debt, not just that in collections, it may be twice that number. It may be something like four in ten Americans have medical debt. Now, sometimes it’s not your fault.
I mean, obviously, it could be a life or death health situation. Sometimes it’s insurance’s responsibility and there’s confusion about who was supposed to pay the bill. It’s a big financial drag for a lot of households, though.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I was alluding to the fact I was watching. My wife and I are watching The Pit. We’re not backed by HBO Max in any way, shape, or form.
There actually was a case of someone who couldn’t pay their medical bills and they actually left. So I have to believe that this is a big issue. Since we’ve talked to you about credit cards, is medical debt treated differently than credit card debt?
Ted Rossman, Bankrate
It is. And this is an important clarification for people because sometimes when you get a big medical bill, the temptation might be to pay it off with a credit card. That’s a mistake because credit card debt has really high interest rates.
The average is about 20 percent and it’s really going to negatively impact your credit as well. I mean, it’s going to cost you a lot of money in interest, but that’s going to show up on your credit report as credit card debt. It’s hard to pay it off.
It drags on for years and years. The better approach is to try to negotiate with the doctor or hospital. A lot of times they will put a payment plan together for you at a much lower interest rate than what a credit card would charge.
So a lot of times you can get a no interest or low interest plan from the doctor or hospital. Maybe you pay a certain amount every month for a few years. Even trying to negotiate a plan is a much better approach than just putting it on a credit card because then it’s not medical debt anymore.
It’s credit card debt, very high interest rates, worse treatment from the credit bureaus. Medical debt is actually treated much more favorably by the credit bureaus. Most of it won’t ding your credit at all.
The only medical debt that hurts your credit is that that’s been in collections for more than a year and it’s more than $500.
Jeffrey Snyder, Broadcast Retirement Network
Ted, just as a follow-up to that, if I’m seeking care, I was alluding to this episode, you shouldn’t not get care. Is it best to go to the hospital, to the doctor, seek care? Because there’s a Hippocratic Oath, all that kind of stuff.
They’ll work with you. I mean you just approach them up front. Is that a kind of a good approach?
Ted Rossman, Bankrate
It is a good approach and we’re also seeing more people shopping around for care that you know is coming. I mean sometimes it’s a true emergency and you got to seek care right now and figure out how to pay for it later. Hopefully people have insurance, but I realize even with insurance there can sometimes be hefty bills.
I mean some of this you want to think about on the front end in terms of what’s your deductible, what are you committing to, what’s your maximum out of pocket. I mean you want to kind of align that with your financial status and emergency savings and so on. But we all are also seeing more people shopping around for like if you need an x-ray or you need an MRI.
Can you shop around? There’s actually very different prices even with insurance. I mean certainly without, but even with insurance we’re seeing more insurers too.
Like United Healthcare has a plan where they’re really incentivizing people to shop around and you’re going to get better rates from certain doctors than others. So yes, you can actually be a consumer of healthcare. We don’t always think about that.
We think about comparison shopping for cars and couches and TVs and other things, but you can absolutely comparison shop healthcare.
Jeffrey Snyder, Broadcast Retirement Network
And some would probably argue, Ted, that what’s missing from the healthcare discussion is that consumer advocacy, that being able to shop around. So important, but probably we don’t have enough time for that, probably on their show. Let me ask you about saving for retirement, buying a home.
How do you kind of factor that into medical debt? Obviously you need to save for retirement, needs a roof over your head. So if you’ve got this big nut of medical debt, there’s going to be an impact I would think.
Where do you prioritize your saving and spending?
Ted Rossman, Bankrate
Well, some people are using those pre-tax health savings accounts as actually a dual health investment vehicle, but also potentially retirement savings. Because some of those plans, it’s not use it or lose it. Some of them you have to use it or lose it within a certain year.
That’s more of the flexible spending account model. But the HSAs that you can just keep in perpetuity and you can invest it, that’s actually a great tax-advantaged healthcare savings tool that could also double as retirement savings. Or the other thing is a lot of retirees are paying a lot out of pocket for healthcare costs.
So if you can get some of those tax advantages, HSAs are something to look into. If we’re talking more kind of broad budget questions, I mean, it is good to contribute at least enough to the 401k to get the employer match. So maybe that’s three or four or 5%, depending on your employer.
That’s 100% free money if you’re getting a 100% match. Now, we’d like you to contribute more. I mean, ideally you’re going to invest 10% or 15% for retirement, but I know it’s easier said than done and there’s different priorities.
Something I like to talk about is you can do a mix. If you’re trying to save more, invest more, pay off debt, it doesn’t have to be all or nothing with any of these. I mean, sometimes the best approach with your paycheck or with your tax refund is do some of everything.
Pay off a little credit card debt, boost your savings, maybe bump up your 401k percentage a little bit. A lot of personal finance is more of a slow and steady wins the race kind of thing. We can’t afford to do everything all at once, but if you kind of keep your eyes on the long-term prize, just steadily chipping away at these different goals is often the best way to go.
Jeffrey Snyder, Broadcast Retirement Network
I like that you referenced the turtle and the hare. I mean, that’s essentially the story, right? The turtle actually won because he was slow or she was slow and steady.
All right, last question for you. There’s been a lot of, I was referencing before we started, a lot of commercials online about consolidation of debt. You and I have talked about that on previous shows.
What about some of these medical debt consolidation companies? Are there not-for-profit alternatives like there are with credit card debt?
Ted Rossman, Bankrate
You could certainly ask a nonprofit like Money Management International or GreenPath or another member of the National Foundation for Credit Counseling. I mean, I’m sure they could be helpful. In general, though, it’s better to keep medical debt as medical debt.
Like, don’t put it on a credit card. Sometimes the doctor or dentist or veterinarian, they might even have the credit card right on the counter. Like, care credit is a popular option.
Those cards have really high interest rates. A lot of times you’re paying over 30%. Even if they have a deferred interest promo where it’s 0% for a time, if you don’t pay it off by the time the clock runs out, then they charge you all this retroactive interest.
Or before you just plunk down your general purpose visa or MasterCard or Amex, I would really keep medical debt as medical debt. Don’t mix it with credit cards. Try to negotiate a payment plan.
You’d be surprised how often doctors and hospitals are willing to work with you on low or no interest deals. I mean, you could potentially take out something like a personal loan as a way to pay off a medical bill. That would certainly be better than a credit card.
But I would still start with asking the hospital for a break. Not enough people are doing that.
Jeffrey Snyder, Broadcast Retirement Network
Hey, look, they want to get paid too. I mean, at the end of the day, they got a balance sheet. They have liabilities that they need to pay or pay towards.
Ted, we’re going to have to leave it there. Excellent conversation. Great analysis.
And we look forward to having you back on the program again very soon, sir. Me too. Thank you.