How to Manage a Medical Emergency Without Going Bankrupt

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Medical bankruptcy is a major problem in this country. One study found that medical bills are the largest cause of bankruptcy in America.1 And it’s not just your average Joe or Jane who struggles with medical bills; it’s an issue for some pretty major Joes too.
Take former Vice President Joe Biden, who said that he and his wife would have had to sell their house to cover the cost of their late son’s medical bills had then-President Obama not offered to help.
If even the vice president can struggle with medical bills, what can you do, right now, within the current system, to protect yourself from medical bankruptcy? Well, we’ve got some tips to help you make the best of a potentially difficult situation.

Prepare an emergency fund. Really.

If you’re not dealing with a medical emergency right at this moment, consider starting an emergency fund.

Unfortunately, you never know what can happen, and—if you have anything you can spare—putting aside even a smaller amount of money each month can be a literal lifesaver.

As Kimberly Palmer (@KimberlyPalmer), author of Smart Mom, Rich Mom: How to Build Wealth While Raising a Family, told us, “The best advice is to always build up an emergency fund so you don’t have to go into debt when you have an unexpected expense like a medical bill. Saving at least three to six months’ worth of expenses is a good goal, and even if you don’t need it, it gives you peace of mind.” You can check out Palmer’s website for more info and insight.

Michael Banks, founder of FortunateInvestor.com (@FortunateInvest), offered similar advice: “Create an emergency fund to address any unforeseen expenses—including medical emergencies. You should have enough savings to cover six month’s worth of basic living expenses. (If you’re a freelancer, or contractor, save the equivalent of nine months.) This will provide you with quick access to cash, reduce your stress levels, and buy you additional time to discuss payment options with your medical provider.”

But hindsight is 20/20 (we’ll deal with vision-related expenses in a different post). What should you do if you’re dealing with a medical emergency right now and don’t have the funds saved up to pay for it?

Carefully look over those bills!

Reading over your bills seems like an obvious suggestion, but it’s still an important step, as certified financial educator Maggie Germano (@MaggieGermano) told us. “I think the first thing to do when you have a medical emergency, is to pay close attention to any bills you get. Sometimes, insurance companies or doctors’ offices make mistakes they don’t realize. They may have simply miscoded something.

“It’s up to you to follow up and make sure they aren’t charging you when they shouldn’t be,” Germano advised.

Medical bills can be pretty complex, especially if you or your loved one had to go through multiple procedures. Ask the staff at the doctor’s office to go over the bill with you so you can raise your concerns if you notice any discrepancies.

Set up a reasonable repayment plan.

Most doctors would rather see you pay your bill than watch you go through bankruptcy. That’s why Germano says that they may be willing to work out a payment plan:

“If you can’t afford the bill, try to set up a payment plan with the provider. Most medical centers just want to get paid eventually, so they should work with you to make it easier to pay. Figure out a monthly payment amount that would be comfortable with you and commit to paying that until the bill is paid off. Get the agreement in writing and make sure they send you a confirmation e-mail or letter whenever you make a payment. This will prevent them from accusing you of not paying what you owe. You also want to have this agreement so that they don’t send the bill to collections, which will hurt your credit score.”

Your medical provider may or may not be willing to work out a plan like this, but there’s no reason not to ask!

Never, never, never turn to a payday lender.

If you’re having trouble dealing with medical bills and don’t have great credit, you might be tempted to turn to payday lenders.

They offer short payment terms with very high interest rates, and if you don’t pay back the full amount with interest and fees in time, you’ll have to pay an additional fee to extend the loan.

This is how a lot of people get trapped in a cycle of debt.

If you do need help and don’t have any family or friends you can borrow from, you might consider an installment loan. These loans have longer payment terms, and the best lenders will work with you to determine a payment plan you can handle, even if your medical provider won’t.

Make sure the loan is amortizing, which means you’ll be paying off both interest and part of the original amount of the loan, or principal, with every payment so you don’t end up stuck in debt.

If the lender reports your payments to the credit bureaus so you can build up your credit score, that’s even better.

Stay safe!

Medical emergencies are, sadly, a fact of life. With some preparation and a good game plan, you can hopefully keep that medical emergency from also becoming a financial one.

Be healthy, and stay safe out there!

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Contributors

Michael Banks is a seasoned finance professional and founder of FortunateInvestor.com. With 20 years of professional experience in the financial services industry, he uses his expertise to turn simple lessons on money into lifelong habits that form the basis for a successful financial future.

Maggie Germano is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit MaggieGermano.com.

Kimberly Palmer writes about making smart money and life choices. Her new personal finance guide for moms, “Smart Mom, Rich Mom” is now available! The New York Times calls it “solid” and “witty” and Foreword Reviews says it brings out the “fun” in “funds.” Publishers Weekly calls it an “excellent book” and ” invaluable resource” that “does much more than fill a niche; it bridges a huge gap.”

She is now a features editor on the money team at AARP (@AARP), where her focus is on work & jobs content.

References:

1 Mangan, Dan. “Medical Bills Are The Biggest Cause of US Bankruptcies: Study” CNBC accessed on April 5, 2017 from: http://www.cnbc.com/id/100840148