Medical Credit Cards
You’re at your doctor’s or dentist’s office (or at the vet’s with your canine family member) and need costly treatment that’s not fully covered by your insurance. The staff helpfully directs you to an application for a credit card designed for medical debt. You can be approved on the spot—awesome! And bonus: the APR is 0% for 12 months! What can go wrong?
High-Interest Lenders Recognize Golden Opportunity
People in need of medical care—for themselves or a beloved pet—who can’t immediately pay for the treatment are an appealing loan shark target. Emotionally stressed, perhaps feeling a bit desperate, and in an environment staffed by professional people you trust, you would be far more susceptible to being suckered by someone selling debt than you would be at, say, a car dealership, where likely your guard is up and you trust no one.
So what’s wrong with providing immediate financing to people in need of costly medical care? Well, there’s a not so fine line between offering reasonably priced financing (think of a mortgage) and exploiting vulnerable people who need cash (think payday lending). Medical credit cards clearly, to me, occupy a spot on the wrong side of that line.
The Sickening Side of Medical Credit Cards
Check out these features typical of medical credit cards:
- Deferred, Not 0%, Interest Most medical credit cards offer 0% teaser rates for a promotional period, usually 6 to 24 months. But in reality interest is merely being deferred. If you pay off 100% of the balance within the promotional period, you will not incur a finance charge. But if you’ve paid all but, say, $10 of the balance and the “interest-free” period expires, you will never guess what happens: you have to pay all of the deferred interest! That’s right, the interest on the part of the balance you’ve already paid off will be due, not just interest going forward on the small unpaid balance. In reality, the tease is an offer to forgive the deferred interest if you pay 100% of the balance before the promotional period expires. Don’t pay 100%, and there’s no forgiveness, at all.
- High Rates Medical credit card issuers know that most applicants are in a bind and not in the frame of mind or circumstance to shop around for a loan deal. That marketing savvy translates to very high medical credit card APRs. Expect to pay an APR between 27% and 30% on medical credit card debt. Why do issuers charge such high APRs? Because they can! Again, fail to pay 100% of the balance before the end of the introductory rate period, and this sky-high rate is what you will pay from the day you signed on the card agreement’s dotted line.
- Unclear Terms? In 2013 CareCredit refunded $34 million to over 1 million customers because the Consumer Financial Protection Bureau concluded it had not been adequately explaining the terms of its medical credit card agreement to consumers. You might not be in the mood while in the doctor’s or dentist’s or vet’s waiting room (at least that’s what the card issuer is counting on), but never borrow money unless you fully understand the loan agreement’s terms!
How to Avoid Medical Credit Card Debt
What should you do instead of signing up for a medical credit card? Just about anything except go to a payday lender! Here are a few ideas:
- Emergency Fund The #1 reason for an emergency fund is to stay out of high-interest debt. If borrowing money at 20-30% is your only alternative to pay for unexpected expenses, then it’s only a matter of time before you have debt at 20-30%.
- Current Credit Card Use a credit card you already have to pay for the treatment. Phone your card issuer and ask for a higher credit limit if needed. Here’s another reason to optimize your credit score: so credit will be available to you when you really need it! Or if you have a HELOC set up, now’s a great time to use it.
- Hit Up Your Family Unless you’ve alienated most of your family like I have 🙂 , now’s the time to call on them. Maybe all you need is a short-term loan to pay for the medical treatment; then you calmly shop for a loan with the best terms you can get to repay the personal loan.
- Sell Something, Anything What’s more important to you: snowmobiling or a life-saving operation for Fido? Okay, let me re-phrase that: what’s more important to your kids and your spouse: your snowmobile, or having Fido around?
Medical Credit Cards: One More Way to Postpone Your Retirement
Lenders are ingenious at keeping you in debt, especially high-interest debt. To avoid the nearly unlimited pitfalls and traps takes planning and a wee bit of financial smarts. Build your savings, read the fine print, and don’t be a sucker!