Out-of-pocket health care expenses cost Americans more than $388 billion in 2020, according to the Centers for Medicare and Medicaid Services. For those looking to make health care more affordable, a medical credit card may seem like a good way to shrink monthly bills. But are medical credit cards a good idea? Keep reading to learn the pros and cons of a health care credit card.
Related: Can you pay off a personal loan early?
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What Is a Medical Credit Card?
The principle behind medical credit cards should be familiar to anyone who knows how credit cards work: Just like other types of credit cards, medical credit cards are a form of credit that allows an individual to charge a bill and pay for it later.
As with other credit cards, medical credit cards are issued by banks, credit unions, and other lenders. When an individual charges a medical expense to a designated credit card for medical care, the bank pays their doctor or healthcare provider. The individual then owes the money to the issuing bank and is expected to pay it back according to the terms of their credit card agreement.
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How Does a Medical Credit Card Work?
A medical credit card works just like other types of credit cards in that the cardholder only needs to pay the minimum amount on their statement each month. This would allow a person to spread the cost of medical care across a number of smaller payments over months, instead of having to pay a large sum all at once.
Health credit cards may be available for certain health care providers, including eye doctors, dentists, audiologists — and even pet health care providers like veterinarians. One of the ways a medical credit card can help an individual pay for their care is through interest deferment.
Like some other zero-interest credit cards, some medical credit cards defer interest for a period of time after the healthcare charges are incurred, meaning no interest is charged so long as those charges are paid off in full before the interest-free period expires.
That said, it’s important to clearly read the credit card agreement and understand all credit card terminology to know precisely how interest is applied to health care costs and avoid any surprises. Late payments or balances that have not been fully paid before the deferment period ends can incur interest charges.
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What Makes a Medical Credit Card Different from Other Credit Cards?
Medical credit cards are different from regular credit cards in one very important way: They can only be used to pay for health care and can also only be used within a specific provider network that accepts that credit card. With other credit cards, you typically aren’t limited in where you can use your card for payment, so long as credit cards are accepted.
Another difference between medical credit cards and other credit cards is that health care credit cards generally don’t offer the opportunity to earn cash back or other rewards. While not all other credit cards offer rewards, there are many that do.
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Pros & Cons: Should You Get a Medical Credit Card?
So, is it a good idea to get a credit card for medical care? There’s no one-size-fits-all answer. As with other financial decisions, there are pros and cons — and the ultimate decision will depend on the individual and the scenario at hand.
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When Should You Consider Using a Medical Credit Card?
When an individual should consider using a medical credit card depends on their financial situation — as well as the other options that may be available to them. Generally speaking, if a medical credit card offers a 0% APR promotional period and an individual is confident they can pay back the total before the end of the offer period, using a medical credit card can be a helpful way to cover a medical expense. Plus, this can allow them to still retain room in their monthly budget to keep up with other obligations.
This can make it easier to stay on budget — something a large expense can sometimes make it difficult to do. In some cases, a high medical bill can have a rippling effect if it causes an individual to have difficulties meeting their other financial obligations, making it harder to maintain or improve your credit score and potentially causing longer-term challenges.
However, keep in mind that the 0% APR promotional period will end — and it can end prematurely with just one missed payment. Also, be aware of potential penalties you may face for late payments, which can be steep for medical credit cards.
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What Features to Look For in a Medical Credit Card?
If you’re considering a medical credit card, it’s important to know what to look for in order to find one that’s right for your needs. Specifically, you’ll want to consider the following features:
- APR: As with any credit card, it’s important to know what your APR will be. Shop around and choose the card that offers the lowest APR, in case you do end up owing interest charges.
- Length of deferred interest period, if offered: If a medical credit card offers a 0% APR period, it’s crucial to note how long it lasts. It will be easier to pay off your medical bills before the period ends if it lasts for 24 months as opposed to 6 months, for example.
- Services covered: When comparing health care credit cards, take note of which medical services they will cover. While some may cover everything from dentistry to dermatology, others may be limited to general medical procedures.
- Penalties: Before signing on with any credit card, it’s important to be aware of the fees and other costs you could incur for a late payment. Some cards also end your 0% APR promotional period prematurely if you miss a payment, so make sure you’re aware of that to avoid missing any months of a 0% APR.
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Alternatives to Medical Credit Cards
Medical credit cards are not the only way an individual can cover an unexpected healthcare expense or make dealing with such costs more manageable. Here are some alternatives to medical credit cards:
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1. Loans
Although credit cards may seem like a fast and easy way to cover a large expense, they’re not the only lending product available to many consumers. A bank loan is one alternative.
Bank loans are lump sums of money that an individual borrows and must repay to the lender based on the specific terms of a loan agreement. Bank loans are subject to an annual interest rate based upon the bank prime loan rate, an individual’s credit history, and other factors.
With the bank rate sitting at 3.25% in February 2022, it may be possible for an individual to secure a loan at a rate lower than the APR on a medical credit card, thus providing the potential for savings on medical expenses that are subject to interest charges.
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2. Emergency Savings
While most debts are generally subject to interest, there’s no such cost to use one’s own money (provided those funds are not already earmarked for another purpose). As such, it’s never a bad idea to set up an emergency fund with savings put aside for unforeseen needs and events.
While the answer of how much to set aside for emergency savings will depend on the individual and their circumstances, any savings can come in handy in an emergency. For those setting up emergency savings, it’s a good idea to ensure that money can be quickly accessed (i.e., it’s not tied up in long-term savings or investments) and is in a separate account from daily funds to reduce the temptation to spend it.
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3. Retirement Savings
While early withdrawals from retirement savings plans are often subject to 10% income tax on the amount of funds withdrawn, there are some exceptions. Medical expenses may qualify for hardship withdrawals and may be exempt from this tax — as long as the funds withdrawn do not exceed the medical costs, and other conditions are met.
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4. Financial Assistance/Payment Plan
Some medical offices and healthcare institutions also offer additional financing options and/or need-based financial assistance or payment plans. For those stressing about a medical bill, it’s a good idea to inquire with the provider’s administrative or billing office about possible options.
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5. 0% APR Credit Card
While some medical credit cards provide interest deferments, these are not the only credit card products that charge zero interest. For example, some regular credit cards may offer a zero-interest promotional period as may some balance-transfer credit cards. Just keep in mind that you’ll usually need a solid credit score in order to qualify.
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6. A Regular Credit Card
For a medical — or any — expense, a regular credit card may also be a suitable payment option. And if a card offers rewards or cash back, it may provide some benefits in return.
As with all credit cards (and any type of expense that an individual charges), it’s always a good idea to familiarize yourself with all the terms of the credit card agreement to avoid late payment fees, interest charges, and to ensure a transaction meets the credit card requirements for any potential rewards.
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Explore Your Credit Card Options
Medical credit cards can help you cover a medical expense while allowing you to stay on budget by spreading out the amount owed into a number of smaller payments and enjoying deferred interest. Keep in mind that these cards can only be used for health-care-related expenses, though, and there won’t be any opportunity to earn cash back or other rewards.
Medical credit cards aren’t your only option to cover your healthcare costs though. From cashback credit cards to credit-building cards, there are lots of options for credit card products to cover medical expenses and other bills.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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