When its Best to Pay Your Medical Bills with a Credit Card

Even with health insurance, you could end up paying a large portion of your medical costs out of your own pocket.

Health insurance premiums have skyrocketed in recent years, and with higher premiums, you’d think we would get more for our money.

Unfortunately, this is rarely the case once you add in the cost of co-pays, deductibles, and coinsurance.

My husband and I are both self-employed and pay nearly $8,400 a year for a policy with a $2,000 deductible and 20 percent coinsurance.

If you know anything about deductibles, then you know that we have to pay $2,000 out-of-pocket every year.

Then, the insurance company picks up the tab. So, we must have an appointment with our primary care physician, which is the only service with a copay.

Otherwise, we'll likely pay 100 percent for everything. That includes any lab test, procedure, and specialist visit until we’ve met the deductible.

It’s frustrating to have health insurance and still receive medical bills. Despite being prepared for the major medical expense, the actual bill may be more than expected.

And if you've ever received a doctor or hospital bill, you've likely come across a medical facility asking for the balance to be “due upon receipt.” This isn’t a problem if you have the cash. But what if you don’t?

The good news is that doctors and hospitals are usually understanding of the financial needs of their patients.

If you contact the billing department early on and set up some payment plan, you won’t make any enemies.

Some people, however, go a different route. And instead of setting up a payment plan, they pay off their medical bills with a credit card. This is an option, but is it the best alternative?

Reasons to Pay Medical Bills with Credit Cards

At one point or another, most of us will receive at least one medical bill.

Although many people have health insurance plans to cover large portions of medical expenses, it’s common for health plans to leave small amounts uncovered to prevent patients from over-utilizing doctors, hospitals, and dentists, says Kevin Haney, owner of A.S.K Benefits Solution.

Avoiding Debt Collection

Some people who’ve paid off medical debt with a credit card swear by this method. They felt that it was the right choice for their situation—and maybe it was.

Perhaps the hospital or doctors office threatened a judgment or collection account and a credit card allowed them to wipe the slate clean with the facility.

Earn Rewards at a Low Interest Rate

Also, a savvy credit card user might know how to reap the most benefits from suing a card for uncovered medical expenses.

If you have a card with a 0% introductory rate or a credit card that lets you earn rewards, you can save/make money when you pay the medical bill.

“Putting on a credit card with a decent cash back rewards program is a shrewd strategy to consider in order to generate yourself some extra cash,” says David Bakke, personal finance expert and author of Don't Be A Mule: A Common Sense Guide to Saving More, Spending Less, and Generating Extra Income in Your Everyday Life. “For example, the Citi Double Cash card gets you an unlimited 2 percent cash back on all purchases. So if you had an $8,000 medical bill, put it on that card, then paid it off entirely before or on the due date. That’s an easy $160 you just made for yourself.”

The logic makes sense, but if you’re using a 0% interest card, this approach is only as cost-effective as your ability to pay off the credit card before interest kicks in, which is typically after six to 18 months.

If you’re unable to pay off the card in time, you’re essentially converting an interest-free debt into one that accrues interest.

Payments Plans Have Their Pros and Cons

What some people don’t realize is that medical facilities offering a payment plan don't charge interest on the balance. When you don’t pay interest, you save money.

“I do not recommend putting medical bills on credit cards. It should be avoided if at all possible,” warns Sonya Smith-Valentine, President of Financially Fierce, LLC. “Most doctors and hospitals will work out an interest-free payment plan for medical bills.”

If you pay off a $2,000 medical bill with a credit card at 13% interest and you only make a $42 minimum payment over five and a half years, you’ll end up paying more than $800 in interest.

After doing the math, there’s no denying how you’ll save money by setting up a payment plan through your doctor’s or hospital’s billing department.

Expect short payment plans with high monthly bills

But let’s not forget one crucial fact: some billing departments limit the number of months in a payment plan.

I’ve had to set up a payment plan twice over the years, and in both cases, the facility wouldn’t extend the plan beyond six months. This resulted in higher than expected monthly payments.

If your doctor or hospital’s billing department sets you up on a six-month payment plan, the monthly cost could be hundreds of dollars. You might feel that paying the balance with a credit card is the lesser of two evils.

Your credit card’s minimum payment will probably be cheaper, and with a credit card, you can take your time paying off the debt without worrying about defaulting and having your account sent to collections.

But before you put a medical bill on a credit card, consider the impact this decision has on your credit.

How Medical Bills Can Affect Your Credit Score

When you set up a payment plan with a medical facility, this debt doesn't appear on your credit report, says Smith-Valentine.

This is excellent news because the minimum payments you make to the facility doesn’t count toward your debt-to-income ratio. It's a different story with a credit card.

It doesn't matter if you use a credit card for the sole purpose of paying a medical bill, increasing your credit card balance by hundreds or thousands of dollars can raise your credit utilization ratio.

This is the percentage you owe on a credit card in comparison to your credit line. The greater your utilization ratio, the lower your credit score.

Keep Balances to a Minimum

Ideally, your credit utilization ratio should not exceed 30%. So, if you have one credit card with a $3,000 credit line, try your best to keep the balance below $900.

If paying off a medical bill with a credit card causes your ratio to increase beyond a healthy percentage, your credit score suffers.

And according to Smith-Valentine, if you max out your credit card paying off a medical bill, the card won't be available for other emergencies where no other forms of payment are accepted.

This might be the least of your concerns if you have zero plans of applying for financing anytime soon.

Although your credit score may take a hit, maybe you’re confident in your ability to pay off the card and improve your score. It depends on your unique financial situation.

But if you’re thinking about getting any new credit in the near future, you’ll want to keep your credit card balances as low as possible to avoid reducing purchasing power.

Payment Plans Come With Flexibility

There’s also a measure of flexibility when you set up a payment plan with a medical facility.

If you're having a rough month financially, you can call the doctor or hospital’s billing department and explain your situation.

You might be allowed to make a partial payment or skip a monthly payment without penalty. Most credit card companies don’t offer these options.

Also, if you pay off a medical bill with a credit card, you can miss out on any opportunity to pay a lesser amount.

After a brief illness, Ann from Chesapeake, Virginia found herself owing more than $1,500 to a nearby hospital.

“I had a payment arrangement with the hospital, but the payments under the plan were a little high, and I thought I could save money by paying off the bills with my credit card,” relates Ann.

“It’s a good thing I didn't, because three months after setting up the payment plan, I received a statement from the hospital with a $0 balance. Since it was the end of the year and the holiday season, the hospital canceled balances for select patients, and I was one of them.”

“If I had followed through with my plans to put the hospital bill on my credit card, I might have still been paying on the balance.”

Choosing Between a Payment Plan or Credit Card

Only you can decide whether to pay a medical bill with a credit card or set up a payment plan.

A credit card offers the flexibility and convenience of paying off the balance over time, and you can avoid interest if you’re using a card with a 0% introductory rate.

However, using a credit card also increases your credit utilization ratio; and even if your card has a low, competitive rate, you shouldn’t overlook the fact that you’re trading an interest-free debt for one that potentially accrues interest.

When it’s all said and done, interest-free wins. If you can afford a payment plan offered by a medical facility, you’ll save money in the long run, and the medical debt won't affect your credit.

People who are already debt-free may consider using credit cards to earn some rewards.