How serious is medical debt?

Medical debt has long been one of the quietest financial burdens in the U.S., but lately, it's become almost impossible to ignore the issue. After all, rising healthcare costs, inflation-driven household budgets and insurance premium increases and coverage gaps are converging at the same time, so for many Americans, that pressure is showing up in the form of growing medical balances. Even the cost of routine care can leave people scrambling, and surprise medical bills can be an even larger issue to deal with, especially if you're unable to immediately cover the costs out of pocket.

As a result, many Americans are choosing to delay necessary medical procedures, put off diagnostic tests or avoid getting urgent care altogether, not because they don't need it, but because they fear the bill that will follow and are even more concerned about the potential repercussions that will occur if they can't pay what's owed. At the same time, hospitals and providers are expanding their collections efforts. Unpaid medical bills can be transferred to third-party debt collectors faster than many people realize.

All of this has made medical debt a defining part of today's financial landscape. But just how serious is this type of debt? Below, we'll detail what borrowers should know.

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How serious is medical debt?

Medical debt is more than just another bill. Unlike many other types of debt, most people don't take on medical debt by choice. It often arrives unexpectedly, after emergencies, sudden diagnoses or insurance decisions that are out of your control. That alone can make it feel heavier than other forms of debt. And, there are other possible repercussions that come with carrying medical debt. Here are a few of the main ways medical debt can affect you:

It can strain day-to-day finances

Even relatively small bills can throw off a household budget, especially when they're due all at once or split into multiple invoices from different providers. High deductibles, copays and out-of-network charges can total thousands of dollars quickly. As a result, borrowers often end up juggling rent or mortgage payments, utilities and other essentials to keep up with medical balances.

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It may still affect your credit, both directly and indirectly

Recent credit reporting changes mean that medical debts under $500 no longer appear on credit reports. However, that doesn't mean you are completely protected from the credit damage that medical debt can do. If a medical bill is higher than that threshold and is sold to a debt collector after it remains unpaid long enough, it can still become a collection account that harms your credit score. Plus, you may find that you need to turn to credit cards or loans to cover your medical bills, which can increase your credit utilization ratio and drive down your credit score.

Collections activity can escalate

Medical providers typically send your eligible unpaid balances to collections after a set window, which can sometimes be as short as 90 days. Once a collection agency is involved, the contact attempts can increase, and you may face more aggressive collection tactics. While some providers are more flexible, debt collectors may be less willing to work with you to resolve the issue, at least initially.

Lawsuits are possible — but rare

Hospitals and medical groups can sue for unpaid debt, but this usually happens only after extended periods of nonpayment and failed communication. That said, medical debt lawsuits do occur, particularly with large hospital systems or for high-dollar balances. A judgment can even lead to wage garnishment in some states.

It can grow larger over time

Interest, late fees and administrative charges can also accumulate on your medical debt (depending on the provider's billing practices or the terms of a payment plan). And, those fees and interest charges can grow even larger if the unpaid debt ends up in the hands of a debt collector. And if you use credit cards to cover those bills, the interest charges compound even faster.

What to do if medical debt becomes overwhelming

Because medical debt isn't typically taken on voluntarily and often arrives during already stressful times, borrowers may feel stuck or unsure of where to turn. But there are clear steps and professional options that can help.

• Review bills for errors: Coding errors, duplicate charges and incorrect insurance decisions are all common, so request an itemized bill. If something looks wrong, disputing it early can prevent the bill from growing.
• Ask about financial assistance: Many hospitals are required to offer charity care or income-based discounts. These programs are not always advertised, so you may need to ask directly, but qualifying can reduce or eliminate large portions of a bill.
• Try negotiating: Discounts, extended payment plans or settlements for less than the full amount may be available, especially when you communicate early and consistently.
• Consider debt relief: For borrowers facing multiple medical balances — or a mix of medical and credit card debt — debt relief companies can help negotiate lump-sum settlements with collectors. This can reduce what you owe and create a faster path toward resolution. 

The bottom line

Medical debt can be serious, not just because of the dollar amount, but because it often compounds existing financial stress. While credit reporting changes have softened some of its impact, unpaid bills can still lead to collections activity, financial strain and difficult decisions for borrowers. Addressing medical debt early, and proactively, though, can help keep a temporary financial challenge from turning into a long-term burden.