Medical Credit Cards: What to Know

The high cost of medical care is one of the most important reasons why I want everyone to work on building an emergency savings fund that can cover up to a year of living expenses. Deductibles and copays can quickly add up to more than $1,000 for even routine tests and care. And a more serious condition can be a rough financial burden.

On top of that, your doctor’s office may be making the cost of care even worse. A new report from the Consumer Financial Protection Bureau (CFPB) shines a light on the growing popularity of medical credit cards that are offered at doctor and dental offices as a way to pay for care if you don’t have the cash or savings ready.

If you’re not very careful, medical credit cards can be a very costly mistake. The way these cards work is a bit different from how your regular credit card works. With a medical credit card, there is typically no interest charged for an initial period, which is usually between six and 18 months. That’s a great deal….but only if you manage to pay off your entire medical bill before this period of “deferred” interest expires.

If you still have an unpaid balance after the deferred interest period expires, you end up getting charged an insane interest rate. According to the CFPB the average interest rate for a medical credit card is 26.99%. That’s a lot more than the 20% average interest charge for regular credit cards.

I want to be clear, 20% is already alarming. I don’t have words for how it can be that people are charged, on average, 27% if they can’t manage to pay off medical bills. We’re not talking vacations. Or fancy dinners out, or concert tickets. It makes me so angry that some financial institutions have no shame in charging such high rates for medical care.

The CFPB estimates that about 20% of people who used a medical credit card between 2015 and 2020 ended up being charged interest. An estimated $1 billion in deferred interest charges were paid on these cards between 2018-2020 according to the CFPB.

Here’s my advice on how to deal with your out-of-pocket medical care costs.

• Build up your emergency savings! Am I repeating myself? You betcha! The sad state of our healthcare system is that it is increasingly shifting more costs to consumers. You need to plan for that reality by having savings ready to cover care costs when they arise. Not if, but when. Got it?
  
  
• Never use a medical credit card for elective procedures or more costly care options. Especially at the dentist. I sure hope you have followed my advice to look into a dental savings plan.
  
  
• Only consider a medical credit card if you are 100% sure you can pay off the debt before interest starts. If you are approved for a medical credit card that offers you plenty of time to pay off the bill—a year or 18 months is a lot better than 6 months—and you are rock-solid sure you can get it paid off during the deferred interest period, then this might be an okay payment option to consider.
  
  
• Ask for a payment plan directly with the care provider. Doctors and their support staff are not financial experts. They typically don’t know much about medical credit cards. That makes them easy targets for the slick sales pitch from credit card issuers pushing medical credit cards. Please don’t presume that just because your trusted doctor offers a brochure for a medical credit card they think it is a good deal for you. All they know is that it is a good deal for the medical office.
  
  To be honest, medical providers love medical credit cards, because it removes them from the financial equation. They get paid quickly and easily. But my advice is to always ask to speak to someone directly in billing about other payment options. Ask if you can work out a payment plan directly with them. If you are receiving care at a non-profit hospital or facility, ask about financial assistance. Don’t be shy or embarrassed. You may in fact be eligible for lower fees.
  
  If the billing department suggests a medical credit card, just politely say you do not want to risk having to pay 27% interest (or more) and want to know what monthly repayment plan the office might be willing to accept from you. If you are willing to ask for an alternative, you just might find a billing department willing to accept an “installment plan” where you pay off the bill in a series of monthly payments. You won’t know if you don’t ask.
  
  
• Consider using your regular credit card. If you can’t imagine paying off the medical bill during the deferred interest period on a medical credit card you may be better off using your regular credit card. If you have a solid credit score, chances are your interest rate may be 10% or 15%. That may make it a less expensive way to pay off a medical debt.