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What is Really Driving Credit Card Debt?


Credit Card Debt

We’re all a bit leery of what the new healthcare program will mean for this country. Whether we support President Obama’s efforts or vehemently disagree, there’s no denying that big changes are coming and what makes it so difficult is that we simply don’t know how it all “shakes out”. But now, we’re learning that medical bills are a leading contributor to credit card debt, according to a new survey released this week.

Credit and Medical Expenses

The report finds that almost half of low- and moderate-income households are carrying on their credit cards debt from out-of-pocket medical expenses on their credit cards; the average amount on credit cards was $1,678. The survey, conducted in part by Demos, a nonpartisan research organization, sought to gauge the residual impact of the recession as well as how the Credit Card Accountability Responsibility and Disclosure Act of 2009 plays into it. The survey was conducted online by those who were selected randomly and who have carried credit card balances for at least three months. The margin of sampling error was four percentage points.

Credit Card Debt Down

On average, credit card debt has dropped to $7,150, from a high of $9,887 in recent years. The same number of consumers – 40% – are still using their credit cards to pay for basic living expenses. Those expenses might include mortgage or rent payments, utilities, insurance and groceries. The reasoning is the same: there’s simply not enough cash to cover those expenses. That said, the CARD Act is helping. Those surveyed say better disclosures of late fees and interest rates have found their way into their monthly statements and are written in an easy to understand manner. One third of those surveyed say they are now paying down credit card debt faster. A few years ago, 50% of credit card consumers were paying late fees; today, that number is at 28%.

Still, the CARD Act isn’t alleviating all of the problems. For instance, a senior policy analyst at Demos, Amy Traub, said,

The reliance on credit cards shows that we need some deeper kind of policy to address the wage issues keeping people from making ends meet, and the medical issue, in particular.

Medical Expenses

With more than 75% of Americans who have out of pocket medical expenses, a full 63% say they have turned to their credit cards to pay for some of those expenses. Those households that now have medical bills on their credit cards accumulated close to in $800 in credit card debt. This equates to half the households with medical debt stating they had postponed filling a prescription or skipped a doctor visit or rescheduled tests in order to keep their medical expenses lower.

So are there any other solutions that can help consumers cover their medical needs without adding overwhelming credit card debt? We asked the experts and here’s what we found –

Instead of reaching for the credit card first, there are a few ways to better cope with medical costs. The first things experts suggest is negotiating with your hospital. Many consumers have learned that hospital bills often arrive with a host of different services – x rays, anesthesiology, medications, etc. That one bill should have contact information for all of those different services. It’s the best first place to start. Contact each and see if they are willing to provide any kind of fee reduction. You might be surprised to learn just how many are willing to do that.

Payment Plans

Payment plans are still the most often way we pay down our out of pocket expenses. Most of us simply can’t cover the entire balance at the time services are rendered. Most hospitals and physicians’ offices are more than happy to work out a payment plan. Keep in mind – they may tack on a bit of interest but from what we discovered, it’s far less than you’ll pay in credit card interest. That said, if the interest does look too high to you, ask about it. Be honest and say you don’t feel as though that kind of interest or fee structure will bode well with your budget. Remember, they want to work out a plan that will result in consistent monthly payments. It does the hospital no good to make unrealistic payment arrangements.

Also, most hospitals and physicians don’t report medical bills until and unless they go into collections. This is a big advantage and provided you stick to your end of the deal, you won’t have to worry about your credit cards getting maxed out (because they do report to the bureaus).

Be sure you carefully review every hospital and doctor bill that arrives every month. They change from month to month, so you want to be sure to catch any errors as soon as possible. Did you make a payment that’s not shown up? Did you use your credit card one month to keep your payment schedule and now see that it’s been charged again? Be sure to address any billing disputes before you make another payment. Also, your credit card company may be able to help, too. If you did make a payment and it was processed with any other terms than what you agreed to, you should be able to have it remedied immediately and your credit card company can play a role.

Health Credit Cards

Be sure to check into various health credit cards. There aren’t many that we’ve been able to find, but Citi offers a Citi Health Card that gives consumers another option. Often, the interest is considerably lower – and if it’s not, it may not be the best solution for your needs. Remember, if you charge those medical bills, you’ve basically just moved from a monthly bill that’s set up to payments you can afford with likely no interest to a traditional credit card that has interest accrue each and every month, along with late payment fees and possibly even annual fees. Complete your due diligence.

Most hospitals have charity programs designed to offset some of the costs for low income families or families with other special needs. Some may be limited to those with no insurance and other limitations may be included, but you’ll have to point blank ask about them. No one is going to offer it to you and hospitals have no marketing efforts to get these charitable options to the public – and for good reason. It’s not that they want to pick and choose who’s worthy, it’s just that most everyone could make the argument for such a service. If you qualify or think you might, you should ask about those options.

Finally, if you are carrying health insurance, be sure you’re making the most of it. Pay attention to annual limits, annual deductibles, what constitutes a co-pay for a doctor’s visit or prescription and all of the other details that go into a health insurance policy. There are lifetime caps and services that aren’t routinely covered, too.

Ideally, you won’t want to use your credit card for medical services. Unfortunately, in these tough economic times, this is a trend that will likely continue, especially by consumers whose credit histories have already taken a hit and who don’t want to see anymore damage. Anything you can do to lessen the impact on your credit cards can only benefit you in the long run.

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