Medical bills are a mounting disease in this country. Americans are saddled with at least $140 billion in outstanding medical debt, according to a 2021 study by a Stanford University economist, published in The Journal of the American Medical Association; it’s the No. 1 source of debt collections. More than 100 million adults have medical or dental bills they are paying off over time or that are past due, with over one in five owing at least $5,000, a March 2023 Urban Institute report found.
In Bankrate’s April 2023 Financial Wellness Survey, 14% of Americans said they had medical debt. These and other money concerns had a negative impact on their mental health, 52% say — up from 42% a year ago.
On the other side of the equation, many Americans are sitting on a substantial source of funds: their home. The average U.S. homeowner now has more than $274,000 in home equity, according to CoreLogic.
For those burdened by medical bills, borrowing against that equity could offer some relief, and one easy way to do it is via a home equity line of credit (HELOC). But while it’s tempting to tap that ownership stake, is it advisable to use your home equity to pay medical expenses? Let’s do a check-up.
One way to clear medical debt is to tap into your home's equity via a HELOC.
HELOCs offer flexible repayment periods with few restrictions and lower interest rates than personal loans or credit cards.
On the downside, HELOCs put your home at risk if you can’t make payments, and their variable interest rates can make payments jump in size.
How does a HELOC help with medical bills?
A HELOC is a revolving form of credit. Functioning much like a giant credit card, it gives homeowners flexibility around both borrowing and repaying funds.
Most lenders require at least 15 percent to 20 percent equity in your home to obtain a HELOC, and your credit limit depends on several factors, including your credit and outstanding debts, the value of your home and the amount you owe on your mortgage. Once approved, you’ll be given a line of credit up to 85 percent of the appraised value of your home, minus outstanding mortgage balances.
Once the line of credit is established, you can withdraw sums on a rolling basis, making repayments monthly. Depending on your lender, there might be a minimum or maximum withdrawal requirement after your account is opened. Your lender might offer access to those funds in a variety of ways, including through an online transfer, writing a check or using a credit card connected to your account.
Draw period vs. repayment period
A HELOC has two phases: the draw period and the repayment period. Here’s a breakdown of each:
Draw period: During the draw period, borrowers can withdraw money from the line of credit in varying amounts. Often, they can make interest-only payments, though usually they can make larger payments (both principal and interest) if desired. The draw period usually lasts for 10 years.
Repayment period: During the repayment period, you can no longer withdraw funds, and you’ll begin making full principal-plus-interest payments until the loan is paid off. The repayment period usually lasts 10 years or 20 years, though can be longer or shorter depending on the terms of your loan.
Pros and cons of using a HELOC for medical bills
A HELOC might sound like the solution to wiping out medical expenses, but as with any financial strategy, there are advantages and drawbacks.
You borrow only what you need. During the draw period, you can withdraw as much funds as necessary (within your limit) to pay for medical expenses as they come up. This contrasts with a home equity loan, which gives you a fixed lump sum.
Pay interest only on the amount you draw. A HELOC is an interest-only product where the borrower pays interest for a specified amount of time before repaying the principal. You’ll only pay interest on the amount you use — again, in contrast to a home equity loan, whose repayments start immediately.
You could qualify for a low interest rate. While your exact APR will depend on the lender and your creditworthiness, HELOCs typically have much lower interest rates than credit cards or personal loans.
Flexible repayment options. The timeline for your HELOC can vary depending on the amount you borrow and your lender, but typically lasts 20 or 30 years. During the first 10 years, you might only be required to make small payments towards your interest with the option to pay off the principal. Repaid principal goes to refresh the credit line, and you can borrow that money again.
You could lose your home. The biggest drawback of a HELOC: It’s a secured loan, backed by your home, meaning you could lose it to foreclosure if you don’t make timely payments. Another serious thorn: If home values fall, you could owe more on your home than it’s worth (in other words, have negative equity).
You’ll have a variable interest rate. HELOCs usually come with fluctuating interest rates, meaning they can change up or down over time. That means your monthly payments can vary and, if interest rates rise in general, you’ll be paying increasing amounts, pinching your budget.
There can be big payment jumps. Rising interest rates aren’t the only problem. Your minimum monthly payments are going to make a big leap — often doubling at least — once you enter the repayment period, as they’ll include both principal and interest. Also, your HELOC might come with a balloon payment when the draw period ends — a large lump-sum payment of the outstanding balance. Generally, a balloon payment can be tens of thousands of dollars.
You might not be able to refinance. Once you take out a HELOC for medical expenses, you might have to get approval from your HELOC lender to refinance your mortgage loan — and they could refuse until you pay off the line of credit. Should you sell your home, you’d probably have to settle the HELOC immediately too, cutting into your proceeds.
It’s still debt. Using a HELOC for medical expenses essentially replaces unsecured debt with secured debt — it’s shifting your burden, but not eliminating it. You might find you’re making mortgage and HELOC payments — not to mention other regular bills — all at the same time, and the increased debt load could hurt your credit score. (Of course, having unpaid medical bills sent to collections isn’t going to do your credit profile any good, either.)
Common medical costs
The Urban Institute’s report found that most of American past-due medical debt relates to hospital care. Just three days in the hospital can cost you an average of $30,000, according to Healthcare.gov. Check out these common procedures and the typical cost associated with each — many in the tens of thousands of dollars:
Average cost (without insurance)
Heart bypass surgery
Joint replacement surgery
Gallbladder removal surgery
Angioplasty and atherectomy
Broken bone repair (low end)
Tips for paying off medical bills
It’s important to know your rights when it comes to medical bills. According to the Consumer Finance Protection Bureau, if you’re paying for care out-of-pocket, your provider must give you a good-faith estimate of how much the services will cost. If your bill is $400 or higher than the estimate you received before services, you might be eligible to dispute it.
Even with health insurance, it’s always good to ask for a cost breakdown in advance, anyway, and an itemized list of services and treatments afterwards.
Keep in mind:The No Surprises Act of 2022 protects patients with health insurance coverage. It bans unexpected bills from out-of-network providers or facilities — that is, if you were not informed the place was not part of your plan's network, and/or didn't consent to or authorize its services.
Aside from obtaining a HELOC, here are a few other ways to avoid or minimize the medical debt:
Comparison shop. Even if you have health insurance, you can still shop for a healthcare provider. If you have a preferred provider option (PPO) health insurance plan, you’ll pay less visiting a doctor or hospital that’s part of your insurer’s preferred network of providers.
Review your health coverage. Go over your health insurance policy to see what’s covered and what isn’t. All covered expenses should be paid for by your provider. Keep an eye out for balanced billing: That’s when a hospital or provider tries to charge you the difference between their standard rates and the rates they’ve negotiated with your health insurance company.
Review your medical bills. “It’s estimated that about 60 percent of medical bills that are issued have errors,” says Braden Pan, CEO of Resolve Medical Bills, a patient advocacy firm. “There are two types of billing errors: charges for services not provided and hidden charges. To identify charges for services not provided, review your itemized bill and consult your Electronic Medical Record (EMR) if needed. To detect hidden charges, use tools like Find-A-Code to check for incorrect code pairs. Research the CPT codes and consult resources such as the American College of Emergency Physicians” and the Healthcare Bluebook, an online comparison tool for medical services.
Establish a payment plan. Getting a bill reduction might be as simple as calling your doctor’s billing department. In addition, many medical offices offer payment plans. More often than not, health care staff want to work with you to make repayment manageable and in installments — often with no interest.
Seek out additional help. Depending on your income, you may qualify for special relief. “If you’re dealing with children’s medical bills, the State Children’s Health Insurance Program (CHIP) may offer assistance,” Pan says. “When it comes to expensive drugs, pharmaceutical companies often have assistance programs for individuals with financial need. It’s worth reaching out to the drug manufacturer and inquiring about grant programs.” He also cites several private charities, “organizations like PanFoundation, Healthwell Foundation, Leukemia & Lymphoma Society and CancerCare [that] offer aid for various medical conditions.”
Establish a health savings account (HSA). If your insurance plan allows, take advantage of an HSA to save tax-free money to pay out-of-pocket medical expenses.
Claim tax deductions for medical expenses. If your unreimbursed, out-of-pocket medical bills exceed 7.5 percent of your adjusted gross income, you might be able to deduct them from your taxes (you’ll have to itemize deductions on your return).
How do I get out of debt?
You can get out of debt in a variety of ways. The best way to handle medical debt is at the source: Ask the healthcare provider for an interest free payment plan, or see if they offer income-based financial assistance. Some hospitals will forgive a portion of your medical debt if your income is within a certain percentage of federal or state poverty levels.
What happens if you don’t pay medical bills?
At the least, you’ll incur late fees and hurt your credit score. Healthcare providers also can turn unpaid bills over to collection agencies, who can call you to settle the debt or take you to court for collection. If they sue, legal costs can make the debt balloon. In some cases, if you lose, your wages could be garnished.
What is the minimum monthly payment on medical bills?
It depends on the repayment terms you agree to with the healthcare company or provide, factoring in how much you owe, any financial assistance you receive, and how long they give you for repayment. In general, if your debt is larger (think thousands of dollars), it’s more cost-effective to consolidate it with a HELOC, as it gives you more flexibility in repayment terms, and lowers your monthly payment.