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Healthcare costs in the U.S. are notoriously high, even for those with insurance. About 20% of U.S. households are burdened with medical debt, and in 2021, over half of all collections were related to medical expenses.
Given the high out-of-pocket expenses and surprise bills, options like medical credit cards and loans might seem like an appealing way to cover costs from routine checkups to emergency visits. Your provider may even recommend cards like CareCredit (with 11.7 million users) or loans from companies like AccessOne, Cherry, and PayZen.
However, despite their convenience and attractive financing terms, medical cards and loans can lead to more debt, lower credit scores, and limited future financial help. For this reason, experts in consumer finance advocate against them.
What is the process behind medical financing?
As outlined by the Consumer Financial Protection Bureau, there are two primary methods for financing healthcare:
Medical credit cards can cover the costs of services provided by your doctor or dentist, typically for elective procedures or treatments not covered by insurance. However, you may also be able to charge hospital bills or other medical expenses. These cards frequently offer a zero-interest period, ranging from 6 to 18 months, allowing you to avoid paying interest if you settle the balance quickly.
With medical loans, you repay your medical expenses in installments, with payments sent to your provider. Similar to credit cards, these loans often come with deferred interest, which can increase sharply after a certain period.
The CFPB points out that healthcare providers have various incentives to offer financing options, as it helps them receive payments faster. This can encourage patients to pursue treatments they might have otherwise delayed or researched alternatives for. Moreover, providers benefit from quicker payments and fewer complications with billing or debt collection.
Why medical financing can be harmful to consumers
Medical credit cards and loans carry significant risks. For one, the interest rates on these are often higher than those of traditional credit cards, averaging 27% compared to 16%. If you fail to pay off the balance within the promotional period, the debt can increase rapidly. In some instances, unexpected fees might even cause interest to accumulate on amounts that were previously paid off.
Being pushed into using a medical credit card or loan could cause you to miss out on insurance benefits you're entitled to, or even lead you to pay for unnecessary, costly treatments.
You might have more affordable alternatives to medical financing. Many hospitals and healthcare providers offer income-based assistance, which may include discounted or free care, or at the very least, low- or no-interest payment plans. There's also the option to negotiate directly with the hospital or clinic about your balance.
These alternative options provide stronger consumer protections in case your bill remains unpaid. In contrast, medical credit card debt is treated like any other unpaid credit card balance on your credit report.
How to steer clear of medical financing
Always review your insurance benefits before proceeding with treatment. (If your insurer refuses coverage for non-emergency procedures, you have the option to appeal.) It's also important to assess whether certain tests or treatments are truly necessary, particularly if they seem financially burdensome, and don’t hesitate to seek a second opinion.
Avoid charging expenses to any credit card, medical or otherwise. Experts recommend inquiring about financial assistance, payment plans available through providers, or charitable programs as previously mentioned. Even opting for a personal loan is often a better choice than relying on a credit card.
