Most Americans have some amount of medical bill debt. Whether it comes from a period before they were insured, an instance in which insurance would not cover their medical costs or some other circumstance, most people living in the United States at the middle-class income level or below have medical debt that has ended up on their credit report. This can make getting a loan, a line of credit and other financial necessities difficult or even impossible.
When the topic of how to settle your medical bill debt comes up, most people begin by asking if they should even bother settling the charge. Typically, settling a debt creates its own negative notation on your credit report. However, medical debt is treated differently in the most recent edition of FICO credit reporting. This means that when you settle a medical debt, that settlement activity will be permanently disregarded by FICO in your credit information.
Unfortunately, not all lenders use the newest version of credit reporting. FICO 9 is not yet an industry standard, and therefore is not guaranteed when you’re working with a lender. Therefore, the treatment of your settled medical debt is not guaranteed to be treated in a favorable manner.
So, should you still settle your medical bill debt? The answer will depend on several factors, including the age of your debt, how it was reported by the medical agency you owe, and what the statute of limitation is on the charge. Let’s take a closer look at each factor, and how they affect your repayment of your medical debt.
Depending on whether your medical debt was reported directly to a credit bureau or referred to a collection agency will determine how many marks it has left on your credit report. To know for sure, obtain your credit report from all three major agencies through the website www.annualcreditreport.com. Make note of how your medical debt was reported, and determine how many marks against you you’ll be fighting. Paying off a collections charge will have a positive impact on your FICO 9 score. However, if you are also faced with paying off the original delinquency, that impact will be far less significant, possibly even negating the action altogether.
Debts such as delinquent medical bills and collections charges will remain on your credit report for seven years. How close are you to that seven-year cut off? If you are already approaching the end-point for the debt’s impact on your score, it may be best just to ride out the remainder of your time and focus your efforts on settling other debts or performing other tasks to raise your credit score.
The statute of limitations on your debt is essentially a term for how long you are legally responsible for repaying the amount you owe. This length of time varies by state, and can be more or less than the seven-year stretch that debts remain relevant to your credit report for. Once the legal statute of limitations has passed on your debt, you are no longer responsible for paying it off, but if there is still time left in your seven-year credit impact period, it may still benefit your credit to do so. However, if the debt has already been removed from your credit report and you are still within your state’s statute of limitations for it, you can still be held legally responsible for repayment. This can result in wage garnishment or lawsuits, so be sure to consult a legal professional for help in determining these timelines for your own debt.
So, you’ve looked at your limitations, your credit report, the age of your debt and other determining factors and decided that it’s best to settle your medical bill debt. Now what?
Start with settlement. Often confused with straightforward repayment, settlement of debt is a negotiation to repay part of an owed debt and have the rest forgiven. You may want to consult a debt settlement firm, but be wary: the promises made by these one trick pony legal specialists can often be too good to be true. Offer your creditor one third of the original cost of the debt for starters and negotiate from there. This gives you a place to go, should your initial offer be refused.
It is important to remember also that any amount forgiven from your overall debt in excess of $600 can be considered income in the eyes of the government, and will be taxed accordingly.
Before engaging with the entities to whom you are in debt, gather all relevant paperwork, including all copies of medical bills, collections notices and more. Calling on an accountant or legal professional for assistance if necessary, calculate the total amount you owe and what you believe you can feasibly repay.
Some companies and collections agencies to whom you are in debt will accept a minimum monthly or bi-weekly payment amount that you can dictate. Begin your negotiations for repayment by offering what you believe you can comfortably afford. With the amount already in collections, it is likely that the agency will accept almost any amount you offer for repayment, as they are unlikely to be able to pursue further action against you otherwise.
If you’ve chosen to repay multiple medical bills, work backward on your credit report. That is to say, choose the newest debts first, as they will be most relevant, easiest to repay and will otherwise remain the longest on your credit report. You want to make the most impact possible with your repayment and settlement efforts, so choosing newer debts will attack the biggest damages to your credit rating from the start.
The most important takeaway from learning about how to settle your medical bill debt is to understand how it has happened to you and your family previously, and how to prevent it from happening again in the future. Always speak to your creditors right away when you receive a medical bill, and work on repayment as promptly as possible. If immediate payment is not an option, inquire about debt forgiveness and financial assistance programs. Many people who do not otherwise receive financial assistance are eligible for these programs.