Medical bills can pile up fast, leaving you wondering how to pay them off. Using a credit card may seem like an easy option, but is it the best choice? Here’s what you need to know about paying medical bills with credit cards.
The Potential Benefits
Paying medical bills with a credit card offers a few potential advantages
It buys you time. If you don’t have the cash to cover a medical bill right now, charging it gives you until the next billing cycle to pay it off before interest kicks in This can help you avoid late fees or collections.
You can earn rewards. Many credit cards offer cash back, points, or miles for your spending. If you pay off the balance right away, you could earn rewards on your medical bills.
It establishes payment history. Making on-time payments even on medical bills helps build your credit score. This can help you qualify for better loan terms later.
You get purchase protections. Credit cards extend certain protections you don’t get with other payment methods. For instance, you may have access to return protection, extended warranties, or price drop reimbursement.
The Potential Downsides
A credit card can be used to pay medical bills, but there are some problems with this method:
High interest rates. Most of the time, credit card interest rates are much higher than those on personal loans or other options. If you carry a balance, interest fees can add up fast.
It could increase debt. Charging medical bills to your credit card can quickly eat up your available credit, negatively impacting your credit utilization rate and score. This makes it harder to access more credit.
You’ll lose negotiating power. Many medical providers offer discounts for paying cash that aren’t extended to credit card payments. You also lose leverage to negotiate prices when you’ve already charged the bill.
Credit cards have processing fees. Medical offices may pass along the merchant fees they get charged for credit card transactions through to you. This indirectly increases your costs.
It could count as a cash advance. Some credit cards treat payments to health providers or insurers as cash advances. This usually means you’ll pay interest immediately with no grace period.
When Should You Pay With a Credit Card?
Here are a few instances when it makes sense to use your credit card for medical bills:
- You can pay off the balance in full when it’s due
- You need just a little extra time before your next paycheck
- The bill is small relative to your available credit
- You want to earn credit card rewards
- You’ll come out ahead even with processing fees
Paying medical bills with a rewards credit card can be especially beneficial if you immediately pay off the balance and earn a sign-up bonus worth more than the processing fees.
Alternative Ways to Pay Medical Bills
Here are some other payment options to consider:
- Payment plans – Many providers let you pay in installments interest-free over 6-12 months.
- Medical credit cards – These charge lower interest rates but can only be used for medical expenses.
- Personal loans – An unsecured personal loan will have lower rates than credit cards.
- Home equity loans – Interest rates are comparable to personal loans if you have equity available.
- HSAs/FSAs – Health savings and flexible spending accounts let you pay with pre-tax income.
Tips for Paying off Medical Debt
If you do wind up with lingering medical debt, here are some tips to pay it down:
- Prioritize medical bills over other debts
- Ask providers for discounts for paying cash
- Negotiate lower overall costs and payment plans
- Consolidate debt onto a lower interest card or loan
- Use windfalls like tax refunds to chip away at balances
- Maintain minimum payments on all bills to avoid collections
The Bottom Line
There’s no one right way to pay for medical care. Using a credit card makes sense in some situations but can create or worsen financial issues if you don’t pay off the balance quickly. Consider both the short-term and long-term implications before charging your medical bills.
There May Be Better Options
If you need to finance a medical bill, there are typically better options available than your credit card account. Sure, pulling out a credit card might be the most convenient solution, but the cost (both from a financial and credit score standpoint) is high when you take this approach. Instead of paying with a credit card, you might want to consider an alternative financing option.
Many medical providers are willing to offer an interest-free or low-interest payment plan. You can call the hospital or doctor’s office to discuss your options. Don’t be afraid to ask for a lower payment amount if the initial offer is more than you can afford. If you do work out a payment plan that fits into your budget, you might even want to set up recurring automatic payments (if available) to make sure you don’t accidentally miss a due date.
A personal loan is another option that typically offers a lower interest rate than credit cards. Personal loans are also installment accounts instead of revolving accounts like credit cards which means that it won’t impact your revolving utilization ratio. So, even if you owe a large amount, the debt itself will likely have little to no impact on your credit score. (Note: Your payment history on a personal loan will still matter just as much as it does for any other credit obligation when it comes to your credit score.)
High Interest and Fees
The annual percentage rates (APRs) you pay on your credit card debt can be higher than other types of financing. According to the Federal Reserve, the average credit card interest rate was 22.77% in August 2023 (for interest-assessing accounts). If you carry rewards credit cards or if you don’t have the best credit score, it’s not unusual for your credit card APR to be higher than the national average.
With credit cards, you can avoid paying interest if you pay off your full statement balance each month. But if you revolve a balance from one month to the next, those high interest fees kick in and can be a big expense. If you can’t afford to pay a medical bill right away, it’s not wise to put the charge on your credit card account.