Basis News

If you are saddled with debt right now, learning how to fix credit should be first on the list of items needing your attention . Credit card debt is especially troublesome because your options are few and  if you want to venture into credit report repair, is seems like a hopeless cause . 

If you are burdened with medical debt , you should know that you have more options and it also comes with the satisfaction of wellness . I’ll discuss both types of debt to help you clean up credit report.

If you have medical bills please think long and hard before funding your health care with credit cards. Yes, you need medical care , perhaps prescription drugs and as a lastresort,you must proceed, but realize paying these bills with credit cards will be vert expensive . 

Consider this carefully if you are embarking to repair bad credit. Adding to your credit card balance will not help you to increase credit scores. In fact, it will most likely hurt your chances for higher scores.

Credit cards bills are amortized  daily and this is why your bill changes every month. A tremendous amount of your payment goes to interest and if you are making the minimum payment each month, you will be living a life of imprisonment f that may last a lifetime  

How to handle a medical emergency-an example.

A woman has a stomach problem that results in immediate trip to the Emergency Room. Without insurance, but realizing she has assets, the financial staff decides to proceed with treatment . An overnight stay with surgery results in a $28,000 medical expense . As she is released she is required to sign a number of promissory notes and with gratitude, she goes home to recover.

Three weeks later the medical bill arrives and Mary is shocked as she reads through it. Bandages gauze bandage, cotton balls  . Whoever heard of charging for every small thing? Mary is back to work now, but realizes she will be working a long time to redeem  her medical emergency debt. She ponders what to do . 

What would you do?

If this patient  has credit cards, like most people, she breaks them out and considers using them to pay for her hospital bills  . As she sifts through them she realizes that four credit cards  will be enough to cover the debt, however each will have the entire balance of credit available used up  . She remembers reading one of my articles and remembers her question, how do I increase my credit score?

One of the ways to get better credit scores  raise credit scores  is by reducing your total credit granted to credit used ratio. Maxing out her credit card is not going to help her to fix credit anytime soon.

Still, she wants to honor her obligation.

A $28,000 credit card debt at 15% interest would give her a minimum payment of $910 per month. The problem is that it will take her nearly 22 years  to pay this credit card bill in full and she will have paid at total of $45,360. Ouch, this hurts just about as much as a root canal .

This patient  has another idea. She decides to call the hospital staff and asks them to set her up on a payment program. This isn’t a financial choice the staff wants to make, but realizing that they may never get paid , and after committee meetings , they agree. 

But hospitals are not banks and they do not like the idea of financing long term medical care . The doctors who did this work to help her want to be paid today, maybe next month, but not in several years . Finally, they agree to let Mary pay them in 24 months at 3% interest.

Wow. Not bad. At that rate she will pay $1203 per month and her interest payments are less than $900 for the entire year . Remember credit cards charge interest daily.

What other choices does she have? 

Ultimately, she could simply decline to pay. Skip out completely and let the account go to collection. This normally is not a good idea for a number of reasons. First, you have credit report issues. She will see her credit scores dive and it’s going to take a while to improve these credit report scores. Then, she will be dealing with collection agency collectors, many of which work on commission and are very aggressive . This decision would certainly make her life tough as she tries to deal with telephone  calls and faces legal action.

Yes, she could make a deal with the collection agency . Normally, medical debt is sold to collectors at 10% of the face value, which means her debt would be purchased for about $3000. This does not mean she will be given refuge or even consideration when negotiating her debt though. To the collector she still owes the entire $28,000, but she might get by with paying a lump sum of somewhere in the $10-12000 range .

Her credit report score will still be an issue unless she gets a deletion letter in the debt settlement process.

Let’s say for sake of example that she does have some cash . Uncle Roscoe passed on and left her $12,000 so she could purchase that cute Corvette she always wanted. Instead of the car though, our patient is fraught with medical bills. If she has cash, why not make a deal with the provider? 

You mean the hospital? 

Yes, I mean the hospital. Our patient reads my article and rushes to retrieve her medical bill. Again she is shocked at what a band aid costs. And who is keeping track of all these gauze strips and medical tape  ? She remembers the bedpan she never used and the pitcher of water she is being billed for Then she asks herself this question in a moment of quiet thought.

I wonder how much Blue Cross or Blue Shield would have paid for all this stuff?

 Yes. This really is the million dollar question . Now, she is on the right process of critical thinking Of course the insurance companies are not going to pay full price for all the stuff hospitals use  . Why then should you? Our patient calls the hospital and demands to speak to someone in charge of gouging . When she explains that she will not be held up like a neighborhood storekeeper and she will not be gouged, she offers to go to the drug store and replace everything she used . 

No. Not really, but she does offer considerably less than the $28,000. More like $12,000 which is more in line and realistic figure .

Sure she doesn’t get the car , but she also doesn’t lose her credit and she doesn’t have to fight with collection people and she doesn’t go into credit card prison either. Smart move, our patient. Really smart.

You might be wondering why a hospital would accept her offer The answer and for obvious reasons is that they too realize they are gouging with retail pricing and they understand the time value of money. Money now is worth much more than money tomorrow and in a bad economy, tomorrow may never arrive.