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When it comes to managing medical expenses, seniors often face significant financial challenges. Since retirement usually means living off of a fixed income, dealing with medical bills not covered by insurance can easily put seniors at risk of landing in debt.
According to the Consumer Financial Protection Bureau, nearly a third of American consumers have debt that’s been turned over to collections, with over half of that from medical bills. Even having a comprehensive retirement plan doesn’t guarantee that you’ll be able to avoid unforeseen (and expensive) health problems.
Thankfully, there are strategies to handle daunting medical debt and to prevent debt incurred from hurting your credit. This detailed guide offers helpful information and advice for navigating healthcare costs as a senior and dealing with medical bills and debt that can harm your credit score. Read on to learn more, or click through the menu below to find the information you need.
- How to Budget for Senior Healthcare Costs
- How to Choose the Right Medical Insurance Option
- How to Pay Medical Bills
- How to Maximize Deductible Medical Expenses
- How to Minimize the Negative Effects of Debt on Credit
How to budget for senior healthcare costs
Why budgeting for medical costs matters
According to the Bureau of Labor Statistics, an average of $6,833 a year is spent on healthcare in households led by an individual who is 65 years or older. Underestimating potential medical expenses in retirement is the main mistake that leads to credit-damaging debt and the need for credit repair. The snowball effect of medical expenses is a large part of the reason why they’re important to keep under control as a senior.
Delaying healthcare bills without a plan and ignoring medical debt are surefire ways to cause financial distress, especially when you’re 65+ years old. Creating a budget for healthcare costs is the first step to minimizing the shock of medical expenses that can lead to crippling debt and a ruined credit score. There are plenty of steps you can take to keep your medical expenses under control before you have to negotiate with debt collectors and utilize credit repair software.
What to know when budgeting for senior healthcare
When it comes to routine healthcare expenses, seniors should take into account insurance premiums, out-of-pocket costs and possible expenses associated with paid long-term care. Developing the right medical budget as a senior doesn’t have to be a grueling task.
The key is to be realistic about the different types of costs you need to prepare for and being proactive about asking for help when needed. Account for everything (income, debt, benefits, etc.) and document every financial move so there is a paper trail that eliminates second-guessing and family conflicts.
Navigating the details of health insurance, medical bills, prescription costs and more can be overwhelming for anyone. As a senior preparing for your financial future, it’s wise to involve a trusted advocate who understands your situation and can help you make important decisions regarding medical expenses.
You may choose to give authority to trusted family members who are helping you, and remember you can still oversee all account activity. It’s recommended that you communicate often with your family about your finances and look into professional financial consulting and/or the need for a Power of Attorney.
How to choose the right medical insurance option
The best practices for deciding between the various insurance options as a senior aren’t always obvious. The average American Medicare beneficiary still spent well over $5,000 out-of-pocket per year for medical expenses according to one Kaiser Family Foundation study from 2019. How can you choose the coverage option that is the least likely to land you in debt?
When it comes to covering medical expenses, seniors in the United States have some options, including:
- Medicare: The federal health insurance program for 65+ individuals who have worked full-time for at least 10 years.
- Medicaid: The health insurance program run by states and partially funded by the federal government to help low-income families and individuals.
- Private insurance: Insurance not federally or state run—it can be purchased from either your employer, a state or federal marketplace or a private marketplace.
What to know about the cost of Medicare
To understand what expenses you need to cover yourself as a senior, it helps to know your two coverage options under Medicare, the most popular type of insurance for 65+ individuals.
There is original Medicare, which consists of parts A and B. Medicare part C, which is also known as Medicare Advantage plans, is offered by a private company that has a contract with Medicare.
Parts A and B of Medicare include:
- Inpatient care
- Home healthcare
- Clinical research
- Ambulance services
- Hospice care
- Skilled nursing facility care
- Prescription drugs (limited)
- Medical supplies and equipment
Part C includes all of the following in addition to parts A and B:
- Special needs plans
- Private fee-for-service plans
- Preferred provider organizations
- Health maintenance organizations
- Medicare medical savings account plans
While Medicare covers a substantial amount, there are still quite a few common services among retirees that are not covered, including:
- Most dental care
- Routine foot care
- Cosmetic surgery
- Hearing aids and fitting exams
- Eye exams related to prescription glasses
- Long-term care
Ultimately, what seniors 65 and over will spend on healthcare each year will differ depending on age, gender and health status. Although there are countless scenarios that could increase or decrease an individual senior’s healthcare spending, the general trend remains that their healthcare costs are much greater than their younger counterparts.
Year after year, the US Department of Health and Human Services continues to show the drastic spike in medical expenses for the 65+ age group.
There are plenty of resources available for seniors looking for assistance in understanding the best insurance coverage for their situation. It’s important to keep in mind that senior advocacy centers offer helpful services when you aren’t sure how to make the best decision.
How to pay medical bills
When dealing with medical bills not covered by insurance, there are a few steps you can take to make sure you aren’t overcharged and to prioritize your payments. By following the steps below, you’ll prevent a bill from winding up in collections, which can ultimately hurt your credit score.
1) Don’t pay until you fully verify the bill
Sometimes the way that medical services are billed is confusing. Don’t rush to pay a bill before you thoroughly check it for errors. Educate yourself on how to identify and address the most common medical billing mistakes to save yourself headaches in the future.
2) Make sure insurance was applied to the bill
Ask for an itemized bill from your provider to make sure your bill is adjusted. If you don’t see an insurance payment or discount reflected on the bill, there is probably a mistake. Also, it’s helpful to have a second set of eyes to catch inaccuracies.
3) Check that the explanation of benefits matches the bill
Expect an Explanation of Benefits (EOB) document to arrive at about the same time as the corresponding medical bill. Confirm that there aren’t any discrepancies to avoid being overcharged.
4) Follow up and negotiate until an issue is resolved
A large component of ensuring you’re paying the right amount for your medical bills is persistence. Don’t shy away from calling your healthcare provider and your insurance company multiple times to clarify or negotiate, and record the names of the individuals you’re speaking with and the time. Your wallet will thank you.
5) Request a payment plan
If you can’t tackle medical bills in full, there are often opportunities for interest-free payment plans if you simply ask.
If you’ve done everything in your power to reduce and spread out the cost of medical bills and you’re still struggling, it’s time to ask for support. Reach out to trusted family members or consider enlisting the help of medical billing advocates.
If your medical debt has already been sent to a collection agency, don’t report the bill to credit agencies right away. You may be able to protect your credit score if you’re able to resolve your bill quickly, and it might not even appear on your credit report.
Take a look at the resources below to learn more about how to best manage your insurance costs when you’re 65+:
How to maximize deductible medical expenses
When you’re a senior, it’s important to understand best practices for advocating for yourself to get as much money back on medical expenses via tax deductions as possible. Seniors can benefit from deductible medical expenses that can help them avoid detrimental debt.
If you itemize your deductions, medical and dental expenses are deductible from your income taxes on Schedule A of your tax return as a senior. The limit is 7.5 percent of a taxpayer’s adjusted gross income (AGI) for 2019 and 2020—only expenses that exceed 7.5 percent of a taxpayer’s AGI are deductible.
For example, if someone’s AGI is $50,000, only medical and dental expenses above $3,750 (7.5% x $50,000 = $3,750) would be deductible.
There are clear guidelines laid out by the IRS when it comes to figuring out which costs do and don’t qualify for a tax deduction. Take a look at a quick overview of deductible medical expenses below.
Deductible medical expenses
- Premiums for health insurance and qualified long-term care insurance
- Medical fees from doctors, laboratories, dentists, assisted living residences, home healthcare and hospitals
- Cost of transportation to receive medical care, including ambulance service
- Home modifications costs, such as wheelchair ramps, porch lifts, grab bars and handrails
- Entrance fees for assisted living
- Room and board for assisted living if the resident is certified chronically ill by a healthcare professional and is following a prescribed plan of care
- Personal care items, such as disposable briefs, and foods/nutritional supplements for a special diet, as prescribed by a doctor to treat a medical condition
- Cost of prescription drugs
Expenses not eligible for deduction
- Medical expenses that are reimbursed by health insurance, Medicare or any other program
- Payments or distributions out of health savings accounts
- Life insurance premiums
- Non-medical care to enable the tax filer to be gainfully employed
Although deductible medical expenses shouldn’t be relied on as a primary source of funds for senior healthcare, they can still help cover the cost of care and limit potential debt. A reduced tax burden from medical and dental tax deductions can help retirees reallocate their resources where they matter the most.
Along with other strategies to lower your overall healthcare tab, these deductions might help make the difference in being able to afford home care without going into debt, which can hurt your credit.
Be cognizant of the fact that deductible medical expenses should not be confused with Dependent Care Tax Credit—which is meant for dependent care expenses the primary taxpayer incurs to enable them to work, or look for work, rather than caring for their dependent.
How to minimize the negative effects of debt on credit
Not only can seniors’ credit scores suffer the damage of debt, but their health can be compromised by delaying medical care they need. According to one Consumer Reports survey, 41 percent of people said they put off a doctor’s visit because of cost.
It’s important for seniors to realize that not only are there medical debt forgiveness programs, like RIP Medical Debt, but there are also several encouraging changes occurring.
For example, one recent development is that major credit reporting agencies have agreed not to report medical debts until 180 days after they were incurred in order to give patients more time to resolve them. Here are a couple additional new developments that can prove hopeful for seniors grappling with medical expenses:
- FICO released a new scoring model, FICO 9, which gives medical debt less weight than ever before.
- Overdue or delinquent bills that have gone to medical collection accounts no longer count as unpaid bills once they’ve been settled.
- VantageScore 3.0 has followed suit with a credit scoring model that is more forgiving of unpaid medical bills than it has been in the past.
Here are three main ways seniors can reduce the impact of medical debt on their credit:
1) Finalize payment arrangements right away
Start asking about payment arrangements as soon as you receive medical bills you know you can’t cover. Being proactive to figure out if your provider can give you a payment schedule option will help you minimize the detrimental effects or discount portions of your bill if you pay in advance.
2) Request to make monthly payments on medical bills
As long as you have documented proof that your healthcare provider or collector has agreed to this payment plan, you could buy yourself time by asking to make monthly payments. If they report a negative item on your credit report, you can dispute it by showing they agreed to the payments you’re making.
3) Avoid paying medical debt with credit cards
Think twice before paying for a huge bill with your credit card. Keep in mind that you lose new protections offered by credit scoring companies if you pay your medical costs with a credit card and then can’t pay off the credit card. This type of credit card debt from medical expenses will be treated like any other debt. As a result, it will hurt your payment history and your credit utilization ratio regardless.
When you’re 65+ years of age and struggling to cover medical expenses, it’s easy to feel overburdened. Thankfully, the tactics we’ve shared and the changes in the credit scoring and credit reporting industries can give hope to seniors dealing with outstanding medical bills.
High healthcare costs coupled with a relatively low fixed income could lead to seniors getting into debt and struggling with credit. Even if medical bills compromise your progress, there are plenty of ways to get back on the right track to reach your financial goals in retirement.
Whether you ask a family member for help or consider using a professional service, prioritizing your financial well-being pays off in the end. If you’re concerned about your credit health while handling medical expenses, reach out to the credit consultants at Lexington Law. Our team can help you learn more about your credit report and strategize ways to improve your credit.
Does Getting Joint Credit Cards Have an Impact on Both Spouses’ Credit?
While marriage can help you improve your financial situation, it does not automatically mean that you and your spouse will share a credit report. Your credit records will remain separate, and any joint accounts or joint loans that you open will appear on both of your reports. While this can be advantageous, it’s critical to remember that joint account activity can effect both of your credit scores positively or negatively, just as separate accounts do.
Users Who Are Authorized
An authorized user is a user who has been added to an existing credit account and has been granted the authority to make purchases. Authorized users are typically issued a card bearing their name, and any purchases made by them will appear on your statement. The primary distinction between an authorized user and a shared account owner is that the account’s original owner is solely responsible for debt repayment. Authorized users, on the other hand, can always opt-out of their authorized status, although the principal joint account owner cannot.
If your credit score is better than your spouse’s as an authorized user, he or she may benefit from a credit score raise upon account addition. This is contingent upon your creditor notifying the credit bureaus of permitted user activity. If your lender does report authorized users, the activity on your account may have an effect on both you and your spouse. However, some lenders report only positive authorized user information, which means that late payment or poor usage may not have a negative effect on someone else’s credit. Consult your lender to determine how authorized users on your account are treated.
Joint Credit Cards Have an Impact on Your Credit Score
Opening a joint credit account or obtaining joint financing binds both of you legally to the debt’s repayment. This is critical to remember if you divorce or separate and your spouse refuses to make payments, even if previously agreed upon. It makes no difference who is “responsible,” the shared duty will result in both partners’ credit histories being badly impacted by late payments. Regardless of changes in relationship status or divorce order, the creditor considers both parties to be liable for the debt until the account is paid in full.
Whether you’re happily married or divorced, you and your spouse may decide to open separate credit accounts. Most creditors will enable you to transfer an account that was previously joint to one of your names if both of you agree. However, if there is a debt on the account, your lender may refuse to remove your spouse’s name unless you can qualify for the same credit on your own. Depending on your financial status, qualifying for financing and credit on a single income may be tough.
While creating the majority of your accounts jointly with your spouse may make it easier to obtain financing (two salaries are preferable to one), reestablishing credit independently following a divorce or separation is not always straightforward. To make matters worse, your spouse may wind up causing significant damage to your credit rating following the separation, either intentionally or through irresponsibility – making the financial situation much more difficult.
Before you rush in and open accounts with your spouse, take some time to discuss the shared responsibility of these accounts and what you and your husband would do in the event of a worst-case situation. These types of financial discussions can be difficult, especially when you rely on items lasting a long time, but a mutual understanding and respect for each other’s credit can go a long way toward keeping your score when sharing an account.
Should you pay down debt or save for retirement?
While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.
Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.
If you have high-interest debt, pay it down
When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).
In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.
High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.
To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.
If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.
Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.
If you’re nearing retirement, start to save
The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).
Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.
Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.
Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.
Aim for both goals by improving income
As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.
The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.
If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.
For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.
While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).
How does a loan default affect my credit?
Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.
Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.
30 days late
Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.
The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.
More than 30 days late
Payments that are more than 30 days past due can trigger increasingly serious consequences:
- The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
- You may receive phone calls and letters from creditors demanding payment.
- If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.
Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.
Other ways a default can hurt you
Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:
- If you default on a car loan, the creditor can repossess your car.
- If you default on a mortgage, you could be forced to foreclose on your home.
- In some cases, you could be sued for payment and have a court judgment entered against you.
- You could face bankruptcy.
Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.
How to avoid a loan default
Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:
- For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
- For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.
Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.
Clean up your credit
The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.
Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.
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