Lately, it seems like each store you enter has its own credit card. Every time you approach a cash register with items to buy, you’re offered the opportunity to apply for a special credit card and maybe even a discount on your purchase when you’re approved. You’re not even safe when you go to the doctor’s office or dentist, since medical credit cards are available to help you pay for procedures and copayments. While there can be benefits to getting certain credit cards, obtaining a medical credit card might be the biggest mistake of all.
Understanding Medical Credit Cards
Medical credit cards are generic credit cards issued by large financial institutions that can be used to pay for healthcare expenses only. Generally, they are not proprietary to one physician or medical network. Some can even be used for medically unnecessary, cosmetic treatments and veterinary services.
As with any credit card, once used, interest can be applied to a balance that carries over from month to month. These cards generally offer fixed payment plans that range from 12 months to 60 months, and the payment plan will vary based on the amount spent. In this, they are slightly better and more cost controlled than regular credit cards. Some do offer a period of no-interest, but the interest rates once that period runs out can be upwards of 20 percent.
The Rise of the Medical Credit Card
As medical costs rise, so too have the use of medical credit cards. For many consumers, using a medical credit card to pay off copayments, deductibles or even uninsured expenses feels like the right thing to do—but it’s not always in the patient’s best interest.
First, there’s the interest expense. Medical expenses can be difficult enough to afford without adding the extra burden of a high interest credit card. Instead, you can consider asking your doctor or the medical facility for a payment plan through them that requires monthly payments and adds no interest.
Medical credit cards can also hurt your credit. If you accidentally miss a payment, the card issuer will generally report that to the credit bureaus. Additionally, applying for the card could count against you. Lastly, the credit card’s balance can increase your total debt, which will also take some steam out of your FICO score.
Another thing to consider about medical credit cards is that there’s no tax benefit to using them. If you have a high deductible insurance policy, you can open a health savings account (HSA) and make a monthly deposit that is tax deductible. This is much more beneficial since the tax savings can be viewed as a discount on the cost of your medical care. In addition, the high deductible plan offers a discount on the overall cost of service since your insurance company will have negotiated rates with the service provider or facility—which means you’re getting additional savings over what you’d pay if you were uninsured and used credit.
No matter how you decide to handle your medical expenses, you shouldn’t be forced to make the decision while you are stressed out, in pain, and dealing with a medical condition. One way you can help buy yourself some time is to have a savings account to fall back on. That way, if you need to pay for a doctor’s visit before an expensive, uninsured medical procedure, you can do so with cash from the savings rather than by applying for a new credit card at the doctor’s office. Then, you can take some time to explore all the details about the procedure, its cost and all of the various payment options.