How to Handle a Financial Crisis if You Have Medical Debt: What To Do In Case of Insolvency
What should you do if you have medical debt and find yourself in a financial crisis? You’re not alone. 1 in 3 Americans have medical debt, and it’s the leading cause of bankruptcy. Here are some tips on how to handle your finances if you have medical debt.
1. Make a list of your payments
If you have medical debt, the first step is to make a list of all of your payments and how much each one costs. It makes sense for this list to include payments that you’ve made in the past.
2. Organize your finances
Next, organize your income and expenses on either a spreadsheet or some other type of document so it’s easier for you to reference them when you go through with number 3. If there are any gaps between your income and expenses, such as savings or regular investments, be sure to use those money sources to help offset the difference.
3. Determine which payments take priority over others
After looking at both lists and taking into account any additional monies that you have on hand, you’ll be able to determine which payments take priority over others. Medical debt is a high priority and should be paid off first, if possible. If that’s not possible, then at least make it a top priority to avoid late fees or interest charges.
4. Evaluate your budget
In the event of a financial crisis, it may be necessary for you to cut back on some of your expenses by evaluating your budget accordingly. For instance, if rent is the only thing keeping you afloat financially, consider moving into an apartment with lower rent or one outside of town. This can help keep you from going further into debt while still allowing you to have a roof over your head. Another option might be selling some belongings to generate a quick infusion of cash.
5. Get in touch with creditors
You can take steps toward resolving your debt situation by contacting the creditor, especially if you’re having trouble meeting your payments. Most companies are willing to allow you a grace period for late or missed payments in which they’ll waive fees and interest charges. In this case, it’s best to contact them right away so that the problem doesn’t reach an insurmountable level. You could also ask them about repayment plans or reduced rates. Finally, some companies might be willing to accept less than the full amount owed as payment in full.
6. Don’t ignore phone calls—even from bill collectors!
If paying your medical debt seems impossible at this time, then it’s best to get in touch with the creditor and explain your situation. Many bill collectors tend to be pushy, but you shouldn’t ignore phone calls from them, either. If you do this, they may attempt to take legal action against you. This might include garnishing your wages or reporting your delinquencies to credit bureaus.
7. Go through bankruptcy if necessary
If none of these options work out for you and the medical debt continues to mount, consider filing for bankruptcy. Not only will this give you some time before repaying certain debts (including medical debt), but it could also put a stop to creditors calling or taking legal action against you. However, understand that there are consequences of declaring yourself bankrupt, so be sure you completely understand the process before pursuing it.
8. Seek help from charitable organizations
You might also consider asking for help from various charitable organizations. The National Foundation for Credit Counseling can put you in touch with an agency that may be able to give you financial advice even if they don’t provide funding for medical debt relief or other debts. Many churches will also assist, either by giving you funds or referring you to someone who can help. This is especially effective if your faith community isn’t judgemental about your finances and instead offers support unconditionally, especially when no one else seems willing to do so.
9. Stay out of debt…at any cost!
The key takeaway here is that once you’re faced with a financial crisis, you should do everything in your power to stay out of debt. If the medical debt is the least of your concerns, then don’t take out loans impulsively. Instead, consider working a part-time job or getting a second one if necessary. In the long run, it’s better to pay for things with money that you’ve earned than with credit cards or loans that will accrue interest over time.
