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With the rising cost of healthcare and medical procedures, most Americans are painfully aware of how quickly medical bills can mount. Whether you’re in need of costly medical tests or procedures, or you’re looking into an elective procedure, the financial impact can be enough to deter you from taking care of your medical needs. The impact of unpaid medical debt on credit can be potentially devastating.

Understanding some of the financing options available to help shoulder the burden of these costs can be the difference between taking action on your health and delaying your important medical care. It can also be the difference between protecting your credit scores and damaging them. That’s why it’s important to be smart and selective about the options you consider when it comes to financing medical costs. Let’s take a look at some of the best and worst options to consider when using credit to help manage health care and medical costs.

In-office financing.

While not all medical professionals offer this option, many will work with patients by allowing payments to be made on an account as long as the balance is settled in a reasonable amount of time (usually no more than three months). Even having the ability to split a balance up into two or three payments can provide some much-needed relief in your budget, and many doctors will give you this option interest free. The danger with this arrangement, of course, is that if you should default or become unable to pay, your account can be turned over to a collection agency to recoup the unpaid balance.

Using existing credit.

One of the most common and hassle-free ways to pay for a medical procedure is with an existing credit card. If you have enough room on your card, this is certainly an option. However, if your card has a higher interest rate, make sure you can manage the payment once you account for that balance increase. Keep in mind that your credit can take a hit by maxing out your credit because credit utilization accounts for 30 percent of your overall credit score.

Applying for an interest-free credit card.

Another option when using a credit card to pay for medical expenses is to apply for a card with a 0 percent interest rate. The odds of approval on an interest-free card are higher if you have a good credit score, but be sure to read the fine print. Zero-interest periods are only offered for a limited amount of time so make sure you can pay the full balance — or at least the bulk of it — before that introductory period expires.

Taking out a personal loan.

A personal loan for medical costs allows people with sufficient credit scores and income to borrow money without offering up any collateral. This type of unsecured loan requires an application process that can often be completed online resulting in a quick decision from a loan provider.

Applying for a collateral loan.

Some banks offer personal loans that use something other than a home as collateral. For example, if your car is paid off and still has value, that can be used as collateral to secure a loan that you could use to pay for necessary medical expenses. However, make sure that the interest rate makes sense. And remember, you’ve put your asset at risk in the event that you fail to pay back the loan per the loan terms.

Refinancing your home and taking cash out.

Home equity can be used for a number of purposes. If you have enough equity in your home and your credit score is good, you may be able to refinance your home and take the cash out that you need to cover your medical expenses. This can be dually beneficial if you’re able to lower the interest rate on your existing mortgage in the process. A lower interest rate can translate to a lower monthly payment on the amount you still owe on your home, helping to offset the payment difference on the additional money you’ve borrowed against your home’s equity.

Using a healthcare financing credit card.

Credit cards specifically designed for medical expenses can help shoulder the burden of healthcare premiums or healthcare procedure costs. CareCredit is perhaps the most well-known credit card specifically targeted at medical expenses. This particular card can be paid off and used again and again for qualifying medical expenses. CareCredit offers an interest-free introductory period, but be aware that after that time, the interest rate skyrockets to 26.99 percent. Therefore, you may be just as well off applying for a zero-interest card that has a lower interest rate once the introductory period ends.

Finding a peer-to-peer lender.

Unlike larger banking institutions, peer-to-peer lenders often have more reasonable requirements for loan qualification. These loans connect healthcare consumers with individual lenders in the marketplace that can fund loans and the transactions are made through an online lending marketplace. These loans can range from $1,000 to $40,000 and the payoff terms cannot typically exceed five years. Some peer-to-peer lenders also work with those with credit issues, providing an alternative for those who cannot meet traditional lender requirements.

Getting a home-equity loan.

Home equity loans and lines of credit (also known as HELs and HELOCs) provide an alternative for those who do not want to refinance their primary home mortgage. These are smaller, separate loans that can be taken out against the equity of a home. While interest rates on HELs and HELOCs are higher than primary mortgage loans, they are typically still much better than credit card interest rates.

Taking out a loan against your 401(k).

Most 401(k) retirement plans allow participants to borrow up to 50 percent of the vested balance in their account, or up to a maximum of $50,000. Repayments are automatically deducted from the employee’s paycheck for up to five years. This option can be appealing in that it provides quick access to cash and has no impact on your credit report. Taking out a 401(k) loan also means you’re paying interest back to yourself instead of a credit card company or bank. There are also drawbacks to taking out a 401(k) loan, however. For one, you are essentially paying double taxes on this money because you will also pay taxes when you withdraw the money in retirement. Another word of caution: If you leave your job any unpaid loan amount you cannot satisfy will be reported as taxable income.
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