Help with Medical Debt on a Fixed Income

BILL'S ANSWER

I do not know enough about your personal financial situation to tell you the "best" option for your specific situation, but I'll review some of the usual ways someone on a fixed income can address medical debt.

First off, most hospitals and doctors will negotiate with individuals living on fixed or limited incomes, often agreeing to a reasonable payment plan for little or no interest, or accepting a highly reduced amount as a settlement.

If your debt is with a hospital, they likely have a financial assistance/counselor office that is specifically tasked with helping patients with these issues. If your debt is with an independent doctor or medical service provider, contact them directly and politely explain your situation. (You will find some pointers on negotiating debts a little farther down in this letter.)

In most cases, the amount of leniency your creditor (the person you own the debt to) will agree to will be determined by the specifics of your situation. If you own a $2 million house, or have a large sum in savings or other investments, the fact that you are on a fixed income may not help you much. But if you're in a more humble situation, you may find your creditor very flexible, and perhaps, may be willing to largely forgive your debt.

But you should contact your creditor sooner rather than later. Resolving this situation can get harder if the debt moves to a collection agency.

You should also know that fixed incomes from the government, such as social security, unemployment and disability are typically protected from creditor garnishments, so if you lack any substantial assets (property, investments, etc.), you may be what is often refer to as "judgment proof." Meaning that you have no major assets and have no garnishable income, so even if a creditor tries to collect this debt - by seeking a judgment against you in court, for example — the judgment is nearly impossible to enforce. (You can’t get blood from a stone, right?)

Again, I do not know enough about your personal financial situation to tell you whether or not you would fall into this "judgment proof" category; and while a creditor would likely not be able to garnish your wages, if you do own a home or have other valuable assets, the creditor may be able to collect against those assets.

If this debt is relatively large, or rapidly increasing, and you do have valuable assets you wish to protect, I encourage you to contact an attorney in your area to discuss the potential impact of a judgment against you; an attorney should also be able to recommend the best course of action in regard to this debt based on your current financial situation.

That said, there are several other ways to tackle your medical debt:

A Debt Consolidation Loan

A Debt consolidation loan is the first option that comes to mind for many consumes who find themselves struggling with debt. There are basically two types of consolidation loans available to consumers in your situation: secured and unsecured. A secured consolidation loan is basically a home equity loan which would tap into your home equity to repay your unsecured creditors. This type of loan does not reduce the balance of your debt, but it generally lowers the interest rate and monthly payments. The downside of a secured debt consolidation loan is that it will convert what was previously unsecured debts into debt secured by your home. This means that if you are unable to make your monthly payments, the lender could foreclose on your home. However, secured debt consolidation loans work for many people, so if you own a home this is an option you may want to explore.

An unsecured consolidation loan is essentially a personal loan used to repay other creditors. Since this type of loan is unsecured, the interest rates are usually higher than those on secured consolidation loans. Also, if your credit is less than perfect you may have difficulty finding an unsecured consolidation loan that will actually improve your financial situation, because the interest rate on the loan will be based primarily on your credit score.

For more information about debt consolidation loans, I encourage you to visit the Debt Consolidation Loan Resources page of Bills.com. If you enter your contact information into the Bills.com Savings Center at the top of the page, we can have several pre-screened lenders contact you to discuss the options available to you.

Credit Counseling

In a consumer credit counseling program the credit counselor would arrange a lower interest on your credit cards. You would then make one monthly payment to the counseling firm, which would distribute that money to your creditors. While counseling firms can help some people reign in their debts, many find that these programs do not sufficiently lower their monthly payments to improve their overall financial outlook.

Debt Settlement

Another alternative is Debt Settlement. Companies that offer debt settlement services negotiate with your creditors to reduce the balances on your credit cards, not just the interest rates. Often, debt settlement firms are able to reduce consumer's debts to as little as 40% to 50% of the balance. These programs can also significantly reduce the amount you pay monthly toward your debts. However, the downside is that these programs have a negative impact on your credit score while in the program and for a couple of years afterward. Many consumers find this credit impact well worth the benefit of settling with their creditors.

If you are interested in debt settlement or credit counseling, I encourage you to visit the Bills.com Debt Help Resources page. Again, enter your contact information into the Bills.com Savings Center, and we will have pre-screened providers contact you to discuss the options available to you.

You could also look into filing for bankruptcy. I am not an attorney, and I do not know all of the details of your financial situation, so you should consult with a bankruptcy attorney licensed in your state if you are considering this option.

Finally, as I mentioned earlier, you may want to first see if you can negotiate a reasonable payment plan or a reduced amount directly with the doctor(s) or hospital(s) you owe. So here’s a quick overview of my advice on negotiating payment options with any creditor:

6 Debt Negotiating Tips

Be polite. This will get you further than anything else when negotiating with a creditor. After all, collection agents are humans too. They spend most of their time dealing with angry and difficult customers, so you may find that by being courteous the creditor will be more likely to give you what you want. Like my grandmother used to say "You'll catch more flies with honey than vinegar."

Be specific. Always let the creditor know that your goal is to clean up your credit and that you would like to have them remove their negative item from your credit report as part of your payment agreement. They don't have to grant your request, but if you don't ask, the answer is always no.

Be flexible. Let the creditor know that you are willing to accept a reasonable compromise. Creditors need to meet their objectives, too. If you present a "win-win" situation, then the creditor can feel good about the negotiation.

Be realistic. Some creditors will refuse to negotiate. Don't take it personally and try again at a later date.

Be persistent. The credit repair process takes time and effort. And as with many things in life, hard work and persistence will help improve your chances of success.

Get It In Writing. It's important, when resolving a debt, to always get the agreement in writing before sending your money, and to have them also send a letter confirming that the account is resolved and at a zero balance once they receive your final payment. This is the proof you'll need in cases where a creditor fails to properly report your payment to the credit bureaus or tries to make additional claims on the account in the future. You can ask them to send the agreement letter by mail or fax (or in person, if the creditor is local), which most will be happy to do to ensure your payment. Make sure their offer letter is on the creditor's letterhead & signed. Also, while negotiating with creditors, it never hurts to ask for the negative item to be deleted from your credit report in return for payment.

Negotiating With a Medical Provider

When having problems regarding medical bills, the American Academy of Family Physicians also recommends the following:

• Notify the appropriate offices quickly.
• Keep in touch with your creditors.
• Record the names and phone numbers of the people you are dealing with.
• Document the date, time, and results of your phone calls.
• Pay something — even a small amount — on each bill each month as a gesture of good faith.

I encourage you to download our free Personal Finance Budget Guide. It may help you plan your money management as you navigate the road ahead.

I wish you the best of luck in resolving your debts, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

Bills.com