Medical Debt Consolidation Programs vs Loans

Which is better, a medical debt consolidation program or a loan? Should you work with a private online company or a non-profit organization?

People struggling with unpaid medical bills find industry terms confusing for good reason. It makes choosing the right course of action more difficult. A few simple comparisons might help.

First, review the debt reduction programs offered by online companies versus non-profits. Your creditors may agree to settle for less than the full amount owed.

Then, contrast the pros and cons of taking out a loan to combine payments. You repay the full amount over time to the new lender without killing your credit score.

Medical Debt Consolidation Programs

Medical debt consolidation programs attempt to reduce the amount of money paid to dentists, doctors, hospitals, and collection agencies. If successful, the creditor agrees to accept less than full payment in a negotiated settlement.

Do you qualify for debt relief? (Sponsored Link) People who benefit most from a consolidation program meet these three basic eligibility factors.

  1. Owe more than $10,000 in unsecured debt
    1. Credit cards
    2. Personal loans
    3. Payday loans
    4. Unpaid medical bills
    5. Not student loans
  2. Have a steady job and sufficient income to fund an escrow account over time
  3. Experiencing financial hardship evidenced by delinquent payments

Online Companies

Online medical debt consolidation companies negotiate with creditors on your behalf. In exchange for a fee (a portion of the money saved via settlement), they take you through a tested program.

  • Stop paying all unsecured creditors
    • Demonstrate financial hardship and an inability to retire your obligations
    • Divert combined payments into an escrow account to build a balance
  • Make a settlement offer using the escrow money
    • Propose an immediate lump sum amount
    • Creditor agrees to forgive the remaining balance

The amount of time needed to complete the program is up to you. It takes sacrifice and dedication to build the escrow account to about 1/3 of your total obligations.


Non-profit medical debt consolidation organizations offer a similar set of programs – with a twist. You might feel safer sharing your deepest darkest financial information. The IRS defines a 501 (c) (3) organization with two defining characteristics.

  1. Operates for an exempt purpose
  2. None of its earnings inure to an individual

Non-profit debt management companies will also work with consumers to establish a budget and negotiate with creditors to lower interest rates (credit card only – medical does not include interest charges).

In addition, the Department of Justice publishes a free state-by-state listing of approved credit counseling agencies. These recommended non-profits offer required education services for consumers undergoing bankruptcy.

  • Pre-bankruptcy counseling – includes an evaluation of your financial situation, discussion of alternatives, and a personal budgeting plan.
  • Post-filing debtor education – covers how to develop and meet a budget, manage finances, borrow money wisely.

Medical Debt Consolidation Loans

Medical debt consolidation loans allow you to retire your existing obligations and combine payments. Rather than paying multiple dentists, doctors, hospitals, or collection agencies you make a single payment to the lender once each month.

Get started with a loan request here. (Sponsored Link) If approved, use the borrowed money to pay off your existing medical bills and keep them from going to collections. Repay the lender in equal monthly installments over time.

Keep in mind the interest charges and challenges winning an approval.

Interest Rates

The interest rates for medical debt consolidation loans are a serious drawback. Lenders charge origination fees and interest to use their money. Dentists, doctors, hospitals, and collection agencies do not charge interest – unless the patient financial responsibility form spells this out in writing – which is very rare.

Therefore, taking out a loan to retire medical bills comes at a price. Make sure that you calculate what it will cost to combine these obligations into a single payment to the lender.

  • Upfront origination fee: averages 4% to 6% of the original balance
  • Annual percentage rate: ranges from 10% to 35% depending on qualifications

Exhaust all forms of assistance before borrowing money and incurring these costs.

Credit and Income

Qualifying for a medical debt consolidation loan is not always a sure thing. Lenders want to see that you are likely to repay the money on time and according to terms before approving your application. They consider two main criteria, which former patients frequently fail.

  1. Credit worthiness: Lenders will pull a copy of your consumer report and consider your credit score. Medical bills in collections can appear on your report and hurt your qualifications.
  2. Employment and income: Lenders want to see that you have a steady job and sufficient income to repay the borrowed money. People dealing with health issues are often unable to work due to disability.

Statute of Limitations

Be mindful of the statute of limitations (SOL) when taking out a medical debt consolidation loan. The SOL time bars creditors from filing a lawsuit to compel payment of old obligations. The clock begins ticking on the date of your last payment.

Using borrowed money to consolidate unpaid medical bills resets the SOL. The new creditor, (the lender granting the loan) has much more time to take you to court should you also fall behind on these payments.