Medical Bill Debt Consolidation
Collecting medical bill debts is a bad practice. If you have several personal loans from different banks, you can combine them on more favorable terms and pay only one lender.
This procedure is called medical bill debt consolidation. It is very similar to refinancing. The difference is that refinancing usually means getting a new loan to repay the existing one less profitable loan. During consolidation, several medical bill debt obligations are combined into one debt on more favorable terms.
Combining medical bill consolidation loans
The decision to consolidate loans should be based on two questions, both of which need a “yes” answer from you.
First, will it reduce the total amount of all payments? If you add up the sum of all debt payments that you plan to consolidate, the sum of all payments after consolidation should be lower, otherwise, it doesn’t make sense.
So, for each loan you have now, take the amount you pay each month and multiply it by the number of remaining payments. Add up the total amount for each loan.
In the case of a consolidated loan, you must rely on the rate that the lender gives you. Take the monthly payment amount and multiply it by the number of payments you will need to make. If that number isn’t lower than what you’re already paying, it’s not a good deal.
It is very important to include all consolidation fees in the calculation. Sometimes you will be presented net interest rates or payments that do not include any fees. Make sure that all payments and fees that you will have to pay are included in this calculation.
Theoretically, you should aim for the lowest amount of payments among the offers for consolidation. If you’re going to consolidate medical bill loans, it’s worth getting a few offers before you do, and the one that gives the lowest amount will probably suit you.
However, there is a second very important question: will you be able to make a new monthly payment? Again, if you are facing a monthly payment that is burdensome for your budget, consolidation is not the best choice.
Often the offer that gives you the lowest possible amount of all payments contains some of the highest monthly payments. That’s because many of the best deals are designed for a much shorter time frame. If you consolidate twenty-year loans into the form of 10-year loans or change 10-year loans to 5-year loans, you will almost always reduce the total amount, but at the same time, you will almost always get a monthly payment increase.
You need to make sure that if your monthly payment goes up, you can handle it. The advantage is that after consolidation, you will get rid of this loan much faster and, in general, pay less interest and fees than you paid before. In the long run, this is a good step if you can make new monthly payments.
Everyone’s finances are a bit different, and we can’t say for sure how much of a monthly loan payment you can handle. You have to evaluate it yourself. In general, you will have a hard time if your total monthly debt payments and monthly housing costs exceed 50% of your income.
Advantages of medical bill debt consolidation
- You change the terms of the loan to more favorable ones;
- You get rid of past obligations;
- You improve the credit score;
- You reduce the total cost of the loan repayments;
- You simplify the loan repayment process;
- You reduce the number of overdue payments;
- This is convenient since you do not have to go to several organizations to make payments.
Disadvantages of medical bill debt consolidation
Before you start the difficult procedure of combining your medical bill loans into one, you should think carefully about everything. First of all, you should be aware that nothing is free and you have to sacrifice something in the end. If you come to the conclusion that paying the full cost of the loan for all your obligations takes too much time and effort, prepare for the fact that for the convenience of paying only one combined loan, you will have to pay several additional percent to the amount. As a rule, if your average interest on the amount of loans is 30%, then as a result of consolidation, it can increase to 32%.
It may also happen that your chosen broker will conduct very successful negotiations with your creditors and the credit institution. Thanks to this, the payments of the consolidated loan will be more in line with your requirements. Do not forget that in addition to the direct costs of paying off the debt, you will have to pay for the services of a broker and, possibly, some additional commissions.
5 common debt consolidation myths
Despite the demand for such a service as debt consolidation, many Americans do not dare to use it. The myths that still hover around it and the lack of official information are largely to blame. What prevents you from consolidating your existing medical bill loans?
- This will hurt your credit history. Every time you apply for a new loan without paying off the old ones, it really takes a toll on your reputation. No, it doesn’t ruin your credit history but reduces your creditworthiness and increases the likelihood of rejection. The more rejections you get, the worse the next bank will treat you. But the situation with consolidation is quite different. The bank you are applying to initially knows what you need the money for and that once you get it, you will pay off the rest of the loans, leaving only one debt. Therefore, the fact of applying for a loan for consolidation does not harm your financial reputation in any way;
- This is the same as restructuring. For some reason, consolidation is often confused with debt restructuring. However, these are two different processes. The first involves making a new loan to repay several old ones. And all of them can be provided by different banks. The restructuring takes place within the framework of the same loan agreement, some points of its agreement are simply changed. As a rule, its validity period increases due to a decrease in payments. At the same time, the rate remains unchanged;
- Loan consolidation is the last step. And that’s not true either. The last step for any debtor is bankruptcy. And debt consolidation helps to streamline numerous credit relationships. Loan consolidation helped many borrowers not to bring the case to meet with collectors or bailiffs and to pay off their loans on time;
- Consolidation is suitable only for those who have a bad credit history. And here it’s just the opposite. In order for the bank to give you a loan for debt consolidation, you do not need to wait until the delays overshadow all past achievements. Submit an application in advance;
- You will definitely need a deposit. It is quite common practice to provide collateral to the bank to compensate for some shortcomings in the role of the borrower or simply to get a lower rate. In practice, banks do not always require collateral unless it is initially provided for by the terms of the contract or the requested amount is too large for the bank and it needs additional guarantees. But, as a rule, this is not required for medical bill consolidation loans. However, you may still bring a guarantor with you.
Tags: debt consolidation, loans, medical, money, treatment