I’m Going Back to School… but I Have $7K of Medical Debt

A woman's hands open a wallet full of credit cards.
Aileen Perilla/The Penny Hoarder
Dear Penny,

I am re-enrolling in school, and I have a stupid amount of credit card debt — about $7,000 — from when I had surgery last year and was only able to work part time for a few months.
One of my credit cards is still interest-free, so I was thinking about taking out a $10,000 personal loan to help consolidate debt. I could pay off one card entirely, and also pay for school and cover monthly expenses while I’m enrolled. I will be working part time, so I will be able to cover the monthly fee. The quote I received online is $201 per month for 72 months.
I am far too embarrassed to talk to my mother about this, so I am seeking help from you. Do you think that is a good idea? What are the pros and cons of doing this? Will it affect my credit score drastically? And will the damage be short term if I can continue making my payments for things like student loans, car payments, etc.?

Dear E.,
There’s no reason to feel embarrassed when you’re figuring out your finances. But I understand your hesitance to talk to your mother about it. Our fear of being judged about how we manage our money is amplified by wanting our parents to be proud of us in our own adulthoods. But we’ll get back to that.

A debt consolidation loan can relieve some of the pressure of organizing several billing statements each month. Make sure you review multiple loan offers — well-known options include Upstart, Even Financial, Credible, LendingClub and Prosper — to make sure you’re getting the best loan terms possible. Getting these quotes will show up as a “soft” inquiry on your credit report, so don’t worry about your score being negatively affected.

Interest rates typically start at 5% for people with good credit, but can go up to nearly 30%. That’s higher than most credit card interest rates. If you make on-time payments on your new loan, the ding to your credit score for taking out the loan should only be temporary.

But be critical as you compare these loan offers to your current credit card balance, especially since you’re in a zero-interest period on one of your cards. Could you make more progress during that interest-free period than you would if you got a loan and took on more interest? It’s worth crunching the numbers to see which plan could get you out of debt faster and for less money.

I recommend a website called Undebt.it to figure this out. You can track your debt-payoff plans over time and calculate different scenarios.

Once you decide how to tackle your debt, you may want to sit down with your mother and talk about your situation and your plans. One in 6 Americans have a past-due medical bill on their credit report, according to an analysis of census and Consumer Financial Protection Bureau data. So you’re far from alone in your battle to be well physically and financially.

You may find that your mother is more understanding than you expect, especially once she sees how proactive you’re being.

The Penny Hoarder works with some of the loan providers listed above, but they did not pay to be included here.

Have a tricky money question? Write to Dear Penny and you might see your question answered in an upcoming column.

Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder, and the voice behind Dear Penny.