If you're short on emergency savings and facing an expensive medical bill, there are better ways to cover it than taking out a short-term, high-interest no credit check loan.
According to a new study out of the University of Chicago, 51% of working Americans would need to dip into their savings accounts if they missed more than one paycheck. But about 31% of Americans have less than $500 in savings set aside for emergencies and an additional 19% have no money set aside at all.
So what happens, for example, when you or someone in your family needs an unexpected trip to the emergency room—which can cost up to $700 even with insurance—or worse? Many people who are struggling to keep the finances stable end up using no credit check loans or bad credit loans in an attempt to bridge the financial gap between unexpected medical expenses and their next paycheck.
If you can avoid them, you should, as these types of short-term loans are not the best idea. We’re going to tell you why and then explore some of the options you have available for avoiding them.
Why not pay for medical bills with no credit check loans?
No credit check loans allow you to borrow a small amount of money (usually a few hundred dollars) for a short period of time—often until your next paycheck.
As you may have guessed by their name, these loans don’t require credit checks like traditional personal loans and other financial products, which make them popular among those who don’t have very good credit.
The catch? They come with ridiculously high interest rates and fees, which means that you can end up paying way more money than you originally borrowed. Many people find themselves having to take out another loan just to pay off the first one, creating a cycle of debt that seems never-ending.
In fact, the average person who takes out a no credit check loan spends an average of $520 in fees to repeatedly borrow $375.
Taking out a short-term no credit check loan to pay for medical bills could likely cause more problems than it solves. Just consider that a full 80% of these loans are rolled over or followed by another loan within two weeks of the first one.
You want to get these medical expenses paid down, not pay for them forever. So what do you do?
1. Confirm your medical bill is correct.
The cost of healthcare is ballooning in this country. Even those who are lucky enough to have employer-sponsored health insurance paid a record-breaking average of $19,616 in annual premiums for family coverage and $6,896 for individual coverage in 2018.
If you find yourself with a giant medical bill on your hands, the first thing you should do is confirm that the bill is actually correct. About 80% of medical bills contain billing errors. This usually happens because procedures were miscoded either by a breakdown in technology or human error. One study found that errors are more common in bills totaling $10,000 or more, with an average of $1,300 worth of errors per bill!
In addition to costing you more money, miscoding can also cause the insurance company to reject the claim or pay less of their share than they should. This might happen if your doctor accidentally coded a preventative visit, like an annual physical, that is covered by insurance at 100% as a visit to treat an illness, which is likely not covered at 100%.
So what do you do? First, if the healthcare facility gives you a bill that only shows a lump sum, ask them to provide an itemized bill that lists all of the procedures and charges individually. Then carefully read through that itemized bill, making sure the items listed make sense, that they are coded correctly, and that nothing is duplicated.
Sometimes it can be difficult to parse the diagnostic codes and descriptions on a bill. For anything you don’t understand, call the billing office and ask for an explanation. This writer, for one, can speak from experience. She received a bill for a “surgical procedure” that cost $115. Surely, this is a mistake, she thought, having never had a surgery in her life. Then she realized that it was referring to the impacted wax she had removed from her ear during a routine annual physical. Unbelievable! But unfortunately true.
If you find a real mistake on your bill, demand that the billing department remove it and issue a new bill. If you can’t get ahold of someone or do not receive resolution within a week or so, set a reminder to yourself to keep calling until the issue is resolved.
2. Negotiate a payment plan.
If you cannot afford to pay the lump sum of a medical bill, many healthcare facilities will let you negotiate a payment plan, especially if you meet certain financial criteria, so you can pay it off little by little. This eliminates the need for no credit check loans.
To do this, you may need to contact the billing department, a financial aid office, or a financial assistance office—it can be different depending on what kind of facility you are dealing with. You won’t know what can be done until you ask!
Here’s a pro tip: It’s always better to try to negotiate a bill with a healthcare facility than let it go to a collections agency. According to a 2014 study, about 20% of credit reports contain a medical bill in collections. Once you are in default in that way, it starts to negatively impact your credit score (between 40 and 100 points on average, according to that same study), which can cause even more headaches down the line. A payment plan will keep your debt in good standing and out of the hands of collections.
3. Open a Health Savings Account (if you can)
Health Savings Accounts (HSAs) are a great way to save for both expected and unexpected medical expenses. It allows you to deposit 100 percent tax-deductible money into a savings account. When you use it to pay for qualifying medical expenses, your payment is tax-free, too.
One catch is that you have to have a high deductible health plan (HDHP) and meet certain out-of-pocket criteria to be eligible to open an HSA. To be eligible in 2019:
- an individual’s health insurance plan must have a minimum annual deductible of $1,350 and maximum annual out-of-pocket expenses of $6,750.
- a family’s health insurance plan must have a minimum annual deductible of $2,700 and maximum annual out-of-pocket expenses of $13,500.
Check your insurance plan to see if you qualify. Many plans purchased on the state health exchanges are eligible for HSAs. You may even be eligible if you get health insurance through an employer, especially if you work for a small business.
The other catch is that you can only use it to pay for qualifying medical expenses. The good news is that most medical costs qualify as eligible, according to the IRS.
The great things about HSAs are that you can contribute a good amount of money each year (in 2019, $3,500 for individual coverage and $7,000 for a family), the money never expires, and you can keep rolling it over year after year. The requirements and restrictions of HSAs are updated every year, but even if your circumstances change and you no longer qualify for an HSA, you can still use your HSA to pay for medical expenses until you run out of funds.
If you do have an HSA, you can contribute a little money each month until you build a nest egg. Depending on your employer, you may be able to have them instantly take money out of your paycheck and put it in the HSA, so you never “miss” it.
Technically, once you save enough to cover your deductible and out-of-pocket savings, you’ll never have to dip into your checking account to cover medical expenses. You’ll always have the money on hand, and you’ll get to use it tax-free to boot!
Jessica Easto is a writer and editor based in Chicago. Her primary areas of expertise include personal finance, risk management, and small business. Her book Craft Coffee: A Manual teaches you how to make cafe-quality coffee at home on a budget.
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