Dear Penny: How Can We Cure Our Finances With $100K in Medical Debt?

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Dear Penny,

I haven't worked in the last 14 months. My husband is the only one who has been working. We have two boys, ages 6 years and 14 months. 

Both of us combined have debt of around $100,000, most of it being hospital bills — no credit cards. We are not young, and we would love to repair our credit so we can one day own a house and find financial stability. Please help.


Dear J.,

I think it’s helpful to look at paying off your $100,000 worth of hospital bills and rebuilding your credit as two separate, but intertwined goals. 

That’s because paying off medical debt won’t necessarily improve your credit, and you may be able to improve your credit even while you still owe lots of money to the hospital.

The first thing you need to understand is that medical debt works a little differently from other types of debt.

When you open a credit card or take out a loan, the lender reports the account to the credit bureaus. It then regularly updates the bureaus about your balance and whether you’re making on-time payments.

But that’s not the case with hospitals. They don’t regularly report to the credit bureaus, so the only way the bureaus would find out about any of that $100,000 or so you owe is if the account(s) were sent to collections. (The flip side here, of course, is that medical bills won’t help you build credit.)

Collections, of course, is where the serious damage happens. The negative information stays on your credit reports for seven years — but in collections, medical debt is afforded a few unique protections. Debt collectors are required to wait 180 days before reporting delinquent medical bills to the credit bureaus, which gives you extra time to negotiate with the hospital.

The newer credit scoring models give less weight to unpaid medical bills than other forms of unpaid debt — and if you pay it off, that once-delinquent account isn’t factored into your score at all.

OK, now that we’ve covered the basics on how medical debt affects your credit, here’s an action plan.

With bills that aren’t in collections or have been there for less than 180 days, you’re in a good position to negotiate with the hospital. Start by calling its billing department and telling them how much you can afford to pay each month. They’ll often be willing to work out a payment plan. This might not reduce the overall amount you owe, but it can help you regain your financial footing by splitting your bill into affordable monthly payments.

Given the size of your bill and the fact that you’re a single-income household, you should also ask about whether the hospital has a financial assistance program, also known as a charity care program, and if so, how to qualify.

For bills that are in collections, it’s still usually in the debt collector’s best interest to negotiate a payment plan from you. 

But even if unpaid bills continue to plague your credit reports for seven years, you can start building a positive credit history right away.

Getting a credit card is one of the easiest ways to establish credit. Just charge a routine purchase, like gas or groceries, to it once a month and pay it off in full each month. If you aren’t approved for a regular card, you can put down a deposit and open a secured credit card

All that said, $100,000 is a lot of debt, particularly for a family of four with a single breadwinner. So if you’ve tried these steps and nothing seems feasible, consider speaking with an attorney about whether filing bankruptcy is right for you. 

That may seem contrary to your ultimate goal of financial stability, but sometimes bankruptcy is what’s needed to get back on track. Many people find that their credit starts to rebound in as little as a year or two after bankruptcy.

As you weigh your options, you may find it helpful to remember your larger goals: You hope to buy a house someday, but getting to financial stability is what matters most. 

Define what financial stability looks like to you: Does it mean having a clean slate, even if it further damages your credit in the short term? Or getting your monthly debt obligations under control so you can slowly and steadily rebuild?

You didn’t choose to go into medical debt, but you do have choices for dealing with it. Whatever path you take, remember that you’re on your way to your end goal of financial stability.

Robin Hartill is a senior editor and the voice behind Dear Penny. Send her your questions about medical debt to [email protected].