Debt Vs Medical Bills – How to Manage Your Debt Without Filing For Medical Bankruptcy

Consumer debt is certainly a different type of debt than medical bills. It is handled differently and it is calculated differently on your credit report.

Many types of consumer debt may be classified as luxury debts. Credit cards are always considered luxury debts, even if they are used for utilities, gas or groceries. A car loan for $8,000 would not be a luxury debt, but a $30,000 car loan would be a luxury.

Given these tendencies, credit scoring tends to factor indebtedness and late payments from consumer debt quite harshly. On the other hand, medical bills are not considered a luxury. Instead they are often seen as a necessity.

Is it wise to opt out of life-saving surgery because you don’t have the money available to pay for it? People will take on medical debt in order to survive or maintain their quality of life as best they can. Additionally, no reasonable person goes on a spending spree at the hospital. They get the care they need and worry about the bills later. Of course many elective surgeries such as cosmetic procedures would still be considered luxuries.

Fair Isaac makes allowances in the credit scoring model for the different classifications of luxury versus necessity debts. As such, you can expect that any delinquent debt reported as a medical debt to be counted less harshly than a luxury debt would be.

Medical bills that defaulted on are still included on your credit report but they do not carry the same negative weight that defaults on consumer debts would. Still, they do count and a large amount of defaulted medical bills could be enough to lower your credit enough to increase borrowing costs or a denial of credit altogether.

Therefore it is important to consider whether or not you can manage all of those debts given your current resources. Continue to make all consumer debt payments as normal. As long as you can also pay at least 2% (or $15, whichever is greater) of the balance toward each medical bill, you can normally avoid defaults and repay your medical bills at zero percent interest.

If you are concerned about having enough money to manage all of your debts, then consider credit counseling as an option. This can be effective if you are having trouble with high interest credit cards in addition to your medical bills.

When you are seriously insolvent, then bankruptcy might be a better option. A medical bankruptcy includes all of your consumer debt as well. Since bankruptcy is a complicated matter, you should consult with licensed legal counsel to determine whether bankruptcy should be a serious consideration.

Source by Kenneth Long

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