Medical credit cards: How they work, risks and alternatives

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Medical credit cards may sound like a convenient way to cover unexpected medical expenses, but they come with risks. Though they might not make you pay interest up front during their promotional period, these cards often come with deferred-interest promotions that can lead to heavy interest charges and fees if you aren’t able to pay off what you owe fully before that period ends. This article will help you understand how medical credit cards work and explore alternatives before you decide whether these products are right for you.

How do medical credit cards work?

Unlike traditional credit cards, medical credit cards are designed specifically to help you cover costly medical services or procedures that aren’t fully covered by insurance. While they can be a boon for your healthcare provider, these high-cost products are significantly risky for consumers.

Many medical cards advertise deferring your interest within an introductory period, but buried in the fine print is a warning: If you fail to make timely payments or can’t clear your balance within the card’s promotional period, you’re responsible for hefty interest charges and fees added retroactively to your original medical debt. The Consumer Finance Protection Bureau (CFPB) warns that interest rates for these cards can reach 25 percent or higher.

In September 2023, the CFPB announced a rulemaking process to remove medical bills from credit reports, in addition to other consumer-protection measures. But until these laws are passed, many medical and other credit cards will continue to report missed payments and unpaid balances to the major credit bureaus. If you carry a credit card that does this, it can negatively affect your credit score.

Pros and cons of medical credit cards

The main benefit of a medical credit card is that you can use it to make payments on unexpected and costly medical expenses over time, rather than all at once at the time of your medical services. But you should reserve using these cards for medical emergencies only.

Any benefit is outweighed by multiple potential drawbacks that can land you in significant medical debt, including:

• The risk of substantial interest charges and fees. If you aren’t able to pay your total balance within the payment period you agreed to, you could find yourself paying fees and interest rates of 25 percent or more on your medical costs charged retroactively to the original date of your bill.
• A hit to your credit score. Medical credit cards report your payment history to the major credit bureaus. Your medical debt could end up on your credit report if you’re not able to keep up with payments, resulting in long-term damage to your credit score. Unpaid medical debt of $500 or more can typically stay on your credit report for up to seven years.

The dangers of “no interest” medical credit cards

Promotions advertising no interest on your medical debt may sound appealing, but as mentioned before, these offers are most often deferred-interest promotions. Deferred interest means that interest on your balance will still begin accruing as soon as you accept the offer. If you can pay off your balance in full within the promotion period, you’ll pay none of that interest on your original charges.

However, if you miss a payment, are late with payments or otherwise can’t keep up with your card’s statements, you could end up paying all of the interest that accumulated during the promotional period, as well as other penalties and fees, at interest rates of 25 percent or more. Plus, you’ll continue racking up interest on your remaining balance until that balance reaches zero.

Many people find themselves paying much more than they expected after their card’s promotional period ends — and it’s often the financially vulnerable who pay the highest costs.

How to manage the high interest rates of medical cards

If you decide to use a medical credit card it’s important to stay ahead of the card’s interest and fees. To start with, you’ll want to:

• Prioritize on-time payments. Because even one late payment risks triggering deferred interest on your original balance, you should commit to paying at least your minimum due before your statement’s due date.
• Make payments between statements. You don’t have to wait until the end of a billing statement to make a payment. Any payments received before your promotional period ends help reduce overall interest on any remaining balance.

Alternatives to medical credit cards

Using a medical credit card isn’t your only option for paying off large medical expenses. There are a variety of alternative actions that you can take to help you get past your medical needs while avoiding long-term hits to your credit.

• Call your medical provider. Never pay a medical bill you can’t afford without first calling your provider. Many hospitals and healthcare providers offer financial assistance programs that include discounted healthcare for those who can’t afford necessary treatment or services. States like New York, New Jersey and California require hospitals to provide “charity care” to the uninsured and financially vulnerable. Contact your provider’s billing office to learn what’s available.
• Ask about interest-free payment plans. Many medical providers will split your bill into interest-free monthly payments for six or 12 months (or longer). These payment plans do not require a credit check, nor do they feature deferred interest. There could still be penalties for failing to make your payments on time; still, these plans are far superior to medical credit cards.
• Look for a personal loan. Many lenders offer all-purpose personal loans at much lower rates than the typical medical credit card, with the best personal loans offering starting rates of under 10 percent. Other lenders offer loans designed for medical expenses, though watch for low limits and high rates if your credit is poor or fair.
• Compare traditional credit cards. With medical credit cards charging rates of 25 percent or more, you might be able to qualify for a traditional card with lower rates. The most ideal credit card would typically be a 0 percent interest credit card, though these cards tend to be reserved for those with good credit. Still, depending on the amount you owe, you can find cards more accepting of poor credit.
• Take advantage of FSAs. If you are insured and have time to plan before your procedure or service, ask your insurance company if it offers a flexible spending account. FSAs are designed to allow you to use pre-tax dollars for out-of-pocket medical costs, helping you to save up while reducing your taxable income. Your employer may even match contributions, contributing to higher savings.
• Consider a credit counselor. A credit counseling agency can help you put together a debt management plan to tackle longstanding money issues and pay down what you owe. Start with a nonprofit consumer credit counseling service for free or low-cost advice.

Other strategies for lower medical costs

While the following strategies won’t help you with existing medical bills, they may help you get ahead of other costs down the road:

• Shop around for prescription discounts. It may sound surprising, but your insurance might not have the cheapest prices for the medicine you need. Look for prescription discount cards that can supplement your insurance with lower rates at your local pharmacy, including those offered through state pharmaceutical assistant programs.
• Review your insurance plan. Understanding your plan’s copays, deductibles and annual maximums can help you budget for out-of-pocket costs and plan future medical care. And keep care to providers within your plan’s network, which are providing services at negotiated discounts through your insurer.
• Look for reduced-cost care centers. Look into treatment centers that might provide care for specialty services at a reduced cost. Places like urgent care centers or university clinics might offer lower overall prices than other facilities. As with any medical office, however, make sure you’re comfortable with the staff and the level of care you’ll receive there before committing.
• Ask about financial aid. Depending on your income, you may qualify for financial aid through your medical provider or hospital. Ask your doctor or provider when discussing or planning high-cost procedures or surgery.
• Take advantage of tax deductions. You may be able to deduct medical and dental expenses that exceed 7.5 percent of your adjusted gross income. You have to itemize your deductions in order to get this tax benefit, but if successful, it can cover a wide range of services that include acupuncture, in-patient treatment and transportation for essential care.

The bottom line

While medical credit cards can be a convenient way to cover high and unexpected medical costs, they come with significant risks and potential long-term consequences. With interest rates often reaching higher than 25 percent, falling behind on payments within the promotional period can result in hefty fees and damage to your credit score.

Before applying for these cards, consider alternatives, such as personal loans or traditional cards with lower interest rates. It also doesn’t hurt to ask your healthcare provider about financing options or discounts that might be available to help you manage what you owe.