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Medical Debt Consolidation: Not a Sure Cure
By Siddarth Nagaraj on March 26, 2012

doctors-(1).jpgDealing with illness and the expense that it brings can be a stressful enough experience, but having unhealthy finances makes coping all the more unsavory. Every year, millions of Americans who seek medical treatment subsequently find themselves mired in debt, whether to due to issues with their insurance provider or a complete lack of coverage together, a phenomenon which blights the financial well-being of far too many people.

Attempting to resolve how to pay medical bills is a uniquely complex issue to tackle, particularly if you are still receiving necessary treatment even as you are being billed for more than you can afford to pay. As your debt rises and seems increasingly unmanageable, you might find yourself looking for outside assistance from a skilled professional. A potential opportunity is to lower your amount to be repaid through negotiations. You will need a neat, collective summary of your various medical bills. You may seek simplification of your debt and alleviation of the nightmarish conditions that you go through as a debtor. Appealing as all these traits are, they are also characteristics that advocates of medical debt consolidation cite when advertising their services. Be warned; like its non-medical counterpart, this financial strategy comes with considerable risks and a few costs of its own.

Medical debt consolidation can be pursued in two forms, by means of a traditional unsecured loan or through hiring a consolidation company. If you select the first option, a bank will evaluate your credit status to see whether you qualify for a medical debt consolidation loan. If approved, the loan is sent to your various health-related creditors (i.e. your providers) to help cover with repayment. However, medical debt consolidation loans are not easy to obtain and are small in amount, making them unsuitable for cases where you may owe a large amount of money in the form of medical expenses. Furthermore, since the loan is unsecured you are likely to pay a higher interest rate than if you could show enough stability to take a secured loan (in an unsecured loan, the bank has no collateral in case you default on your repayment, so the interest rate is correspondingly higher than it would otherwise be).

The second and more common form of medical debt consolidation involves the agglomeration of your individual debts into one, larger package, which in theory makes repayment easier to handle. This process is undertaken by a debt consolidation service that you employ. While the idea of such simplification may be attractive at first, it can wreak damage upon your financial status even as it claims to help you. Many debt consolidators claim that they can negotiate with your providers and reduce your interest rates by up to 50%. In fact, this is rarely the case, and the fees charged by these consolidation agencies (in addition to their own interest rates) often exceed the marginal concessions they may manage to extract on your behalf. Furthermore, hiring a consolidation service (for any form of debt) can cause your credit score to be downgraded severely, limiting your ability to gain access to future capital, including secured loans.

While medical debt consolidation is not a step that should be taken without great consideration, its consequences are complex and vary immensely depending upon individual circumstances. Its implications are not to be taken lightly. While some consolidators may recommend the bank loan option to those who have relatively small amounts of debt and are not yet on the verge of bankruptcy, individuals should not rush into pursuing an unsecured loan. Similarly, consolidation services should be strenuously avoided. Ultimately, while medical debt consolidation may work better in some situations than others its utility as a financial strategy changes from case to case.
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