How to Handle Medical Debt Collections and Protect Your Credit Score

Medical Debt

Medical debt can be a considerable burden, especially when it comes out of nowhere due to an unexpected illness or emergency. When you're trying to recover or care for a loved one, worrying about unpaid medical bills and how they might damage your credit score can make things even more stressful. If these bills aren't handled, they can end up in collections and significantly hurt your credit. But don't panic—there are steps you can take to manage medical debt collections and protect your credit.

In this blog, we'll cover what you need to know about medical debt collections, how to negotiate with collectors, explore repayment options, and understand your rights so that you can protect your credit score and regain control.

What Happens When Medical Bills Go to Collections?

Medical debt is one of the most common types in the United States. Unlike credit card debt or personal loans, which can be planned or controlled to some extent, medical debt usually comes from necessary treatments or emergencies. Even if you have insurance, high deductibles, co-pays, or uncovered services can quickly pile up, leaving you with substantial bills that are hard to pay.

If you don't pay these bills on time, healthcare providers—hospitals, clinics, or private doctors—might sell your debt to a collection agency. Once this happens, the collection agency gets the money from you. If you still don't pay, this debt could end up on your credit report and damage your credit score.

Collection agencies can be persistent and aggressive, but knowing you have rights is essential. The Fair Debt Collection Practices Act (FDCPA) protects you from abusive practices by debt collectors. They can't call you at strange hours, use threats, or lie about what you owe. Knowing these rights can help you feel more confident when dealing with them.

How Medical Debt Impacts Your Credit Score

Medical debt impacts your credit differently than other types of debt, like credit cards or personal loans. The major credit bureaus—Equifax, Experian, and TransUnion—uniquely handle medical debt. For example, a 180-day waiting period before medical debt can appear on your credit report. This gives you time to sort out insurance issues, set up payment plans, or dispute any inaccuracies before they impact your credit score.

As of July 2022, medical collections under $500 are no longer reported on credit reports. This change offers some relief, but more enormous debts can still hit your credit hard if unresolved. When medical debt does make it onto your credit report, it can drop your score by as much as 100 points or more, depending on your overall credit situation. A drop like this can make getting approved for loans, credit cards, or even specific jobs tougher.

Because credit scoring models like FICO and VantageScore handle medical debt differently, it's crucial to act quickly to prevent unpaid bills from going to collections. But even if they do, there are steps you can take to lessen the damage and work towards a solution.

What to Do When You Get a Medical Bill

When you receive a medical bill that you can't afford to pay right away, don't ignore it. Most healthcare providers are willing to work with you on payment plans, negotiate lower amounts, or even offer financial help, but they need to hear from you. The sooner you act, the more options you have.

First, make sure the bill is accurate. Mistakes in medical billing are more common than you might think. Some studies suggest that up to 80% of medical bills have errors. Check for duplicate charges, incorrect dates, or charges for services you still need to receive. If something doesn't look right, contact the provider's billing department immediately and ask them to correct it.

Next, double-check what your insurance covers. Sometimes, bills are sent out before your insurance company fully processes a claim, or they might have denied coverage for something they should have paid. If you think insurance should have covered more, call them to clarify and, if needed, file an appeal. If you can get insurance to cover a more significant portion of the bill, it could save you a lot of money.

Negotiating Directly with Healthcare Providers

Suppose you've confirmed that the bill is correct and insurance won't cover it. In that case, it's time to contact the healthcare provider to discuss your options. Many providers have financial assistance programs for patients who can only pay part of the amount. These programs may offer discounts or even forgive part of the debt if you meet specific income criteria.

When you reach out, be upfront about your financial situation. Explain that you want to pay but can only afford part of it. Many hospitals and medical offices are open to setting up payment plans to break down the bill into smaller, more manageable monthly payments. Some may even offer interest-free payment options, which are lifesavers if money is tight.

You can also negotiate for a lower amount. If you can pay a lump sum upfront, some providers might be willing to reduce the total amount you owe. This is especially true if you're uninsured since they often charge insured patients more to compensate for the discounts given to insurance companies. Don't be afraid to ask—the worst they can do is say no.

Dealing with Medical Debt in Collections

If you can't pay or work out a payment plan and the bill goes unpaid, the healthcare provider may send your debt to collections. Getting calls and letters from a collection agency can be intimidating. But even at this point, there are things you can do to manage the situation and protect your credit.

First, make sure the debt is legitimate. Collection agencies must provide a debt validation letter explaining the debt, how much you owe, who the original creditor is, and what your rights are under the FDCPA. If you haven't received this letter, ask for it. Review the information carefully to ensure the debt is yours and the correct amount. You can dispute it if something seems wrong or the debt isn't yours.

To dispute a debt, send a written letter to the collection agency within 30 days of receiving their initial notice. The Consumer Financial Protection Bureau (CFPB) offers helpful templates for this purpose on its website at consumerfinance.gov. Once they receive your dispute, the collection agency must stop trying to collect the debt until they can verify it.

Negotiating with Collection Agencies

Negotiating with the collection agency can be a smart move if the debt is valid and you can pay it. Unlike healthcare providers, collection agencies buy debts for a fraction of what's owed, so they often have more flexibility to negotiate a lower amount. You can settle the debt for less than the total amount, but get everything in writing before paying.

One strategy is to ask for a "pay for delete" agreement. This means you agree to pay the debt (or a negotiated amount) if the collection agency removes the account from your credit report. Not all agencies will agree, but some might be significantly smaller or newer. If you agree, make sure you have it in writing before you make any payments.

If you can't afford a lump sum payment, ask about setting up a payment plan. Some agencies may let you pay in installments, though interest and fees still apply.

Getting Help from Professionals

Suppose handling collection agencies feels overwhelming, or you need more confidence in negotiating. In that case, you should get professional help. Credit counseling agencies, like those associated with the National Foundation for Credit Counseling (NFCC), can help you understand your options, negotiate with collectors, and set up a debt management plan.

Another option is consulting a consumer law attorney, especially if you think your rights under the FDCPA have been violated. Some attorneys specialize in dealing with debt collectors and can give you valuable advice or even represent you in disputes.

Be sure to work with reputable organizations and professionals. Unfortunately, there are scams, so do your homework to ensure that anyone you work with is accredited and has a good reputation.

Knowing Your Legal Rights

Understanding your rights regarding medical debt and debt collections is crucial. The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects you from abusive, unfair, or deceptive practices by debt collectors. Under this law, collectors cannot:

• Call you before 8 a.m. or after 9 p.m. unless you agree.

• Contact you at work if you tell them not to.

• Use threats or abusive language.

• Misrepresent the amount you owe or lie about taking legal action.

If a debt collector breaks these rules, you can sue them. Keep a record of any violations, including dates, times, and details of what was said. This can be helpful if you decide to take legal action.

The Fair Credit Reporting Act (FCRA) also protects you regarding what's reported on your credit. You can dispute any incorrect information on your credit report, including medical debt. If a debt collector or credit bureau cannot verify the debt, it must be removed from your report.

Steps to Protect Your Credit Score from Medical Debt

To protect your credit score from medical debt, you must be proactive. Start by regularly checking your credit reports for any new collections or mistakes. You can get a free copy of your credit report from each of the three major bureaus once a year through AnnualCreditReport.com. Due to the pandemic, they're offering free weekly reports through the end of 2023, which makes it easier to keep track.

If you see a medical collection on your report that is incorrect or doesn't belong to you, dispute it immediately with the credit bureaus—Equifax, Experian, and TransUnion. You can file disputes online:

• Equifax: equifax.com/personal/disputes

• Experian: experian.com/disputes/main.html

• TransUnion: transunion.com/dispute

The bureaus have 30 days to investigate. If they find the debt incorrect or cannot verify it, it must be removed from your report.

Taking Charge of Medical Debt and Your Credit

Medical debt can be challenging, but it doesn't have to ruin your financial future. By understanding how medical debt collections work, your rights, and how to negotiate with healthcare providers and collection agencies, you can manage your debt more effectively and protect your credit.

Don't ignore medical bills—reach out to providers, verify the debt, and see what kind of payment options or financial assistance might be available. If the debt goes to collections, know that you still have rights and strategies to minimize the impact on your credit.

Consider getting professional help if you need it. Reputable credit counselors and consumer law attorneys can guide you through the process and help you make informed decisions. Most importantly, take control of your credit by monitoring your reports, disputing any inaccuracies, and staying informed about your rights. With the right approach, you can navigate medical debt collections and maintain a solid financial future.