Medical Credit Cards: Should You Use Them? What Are Good Alternatives?

Before relying on a credit card to finance a large medical expense, consider all your options to foot the bill. Doctors and hospitals may push medical credit cards that, if used incorrectly, could mean paying a lot more for your procedure than the original bill. You may be better off using your own credit card or applying for a 0% interest one. Other options include loans, home equity, savings and cost negotiation.

Medical credit cards explained

Medical credit cards are specialized credit cards offered through your medical provider to pay for specific health care costs from that provider. Medical cards don’t always cover all medical services or procedures. Some may only cover in-hospital services and non-elective surgeries, while others are specific to more cosmetic and elective procedures. These cards are only accepted by participating medical providers and hospitals, which may accept one card but not another, and can’t be used for other types of purchases such as groceries or gas.

You generally apply for a medical credit card at your medical provider’s office or hospital and, in some cases, online. These cards typically require an application and may include a credit check — though not always. You can be denied if you don’t meet the credit standards, which depend on each issuer. If you’re approved, check to see if the card information and payment history will be reported to one of the three major credit bureaus. Not all will; some will report only if you become delinquent and your account is sent to collections.

Medical cards often require that you repay the balance within a certain time frame, typically between six months to 36 months, depending on the size of the balance. They also may offer no interest for this period. But in many cases, this is deferred interest, meaning that if you don’t pay off the entire balance by the end of the promotional period, you must pay the back interest, usually at a rate in the high 20s. It’s important to make sure you understand how the interest works on these cards. The Consumer Financial Protection Bureau (CFPB) fined CareCredit $34.1 million in 2013 for deceptive card enrollment tactics that obscured the card’s deferred interest.

You should also know what other penalties you could incur. Typically, penalties for late payments are also severe on medical credit cards. After one missed payment, you’ll be charged a fee and likely lose the promotional 0% interest rate. Interest will then begin accruing immediately. Make sure you have a copy of the terms and conditions of the card before signing up. If you can’t get that information from the medical provider immediately, postpone your procedure so you have time to review it and compare the card against other options.

Also do the math when it comes to deferred interest. Consider how many months you have to pay off the balance and whether you can make large enough payments to do so. If your budget is too stretched to pay off the debt before the end of the promotional period, consider other options instead or use another payment method in conjunction with a medical credit card.

Pay medical bills with a regular credit card

If you have enough available credit on a card with a low interest rate, consider using that for medical expenses. Make sure the balance remains less than 30% of your limit, so you don’t hurt your credit score. Make substantial monthly payments to prevent too much interest from accruing. Cut back on spending and don’t use your card until the balance is back to zero. If you have good credit, consider moving the balance to one with a 0% APR on balance transfers for a limited time (usually 12 months to 18 months). Or, open a regular credit card with an intro 0% APR for purchases and use that for the medical bills directly. The benefit of these cards is that the interest won’t start accruing until the end of the promotional period.

Alternative financing options

Credit cards aren’t the only way to pay your medical bills. There are several options for other financing, which may be a better, cheaper solution for you, depending on your individual circumstances.

Loans: There are companies that specialize in medical loans, but all-purpose personal loans from your bank can also be used to pay medical bills. These require a minimum credit score, typically a 600 to 640 FICO Score, although some lenders will accept scores as low as 580. Generally, higher credit scores mean a lower interest rate. Rates on unsecured loans typically range from 5% to 36% and are generally fixed. The installment payments make paying back the loan easier — as long as you stick to the schedule — but you still have to pay interest on the amount you borrowed, making the overall cost of your medical procedure more expensive.

Home equity: If you own a home and have good credit (660 FICO Score and above), consider tapping any equity that has built up over the years for the funds by getting a home equity loan, a home equity line of credit (HELOC), or cash-out refinance. These offer rates between 4% and 7%, lower than even the best rates on personal loans. HELOC rates are typically variable, so they can increase and decrease as the interest rate environment changes. Also, factor in any closing costs, which apply to refinances and equity loans and are usually wrapped into the total borrowed amount.

Retirement savings: Some 401(k) plans allow you to take hardship withdrawals or loans against your savings for medical bills. You can also take early withdrawals from traditional and Roth IRAs to pay for unreimbursed medical expenses. To avoid the tax penalty when you withdraw early, the unreimbursed medical expenses must exceed 10% of your adjusted gross income. If they don't and you’re under 59 ½ years old, your withdrawal will be subject to income tax plus an additional 10% tax on top of that.

Other: First, try to negotiate a lower charge or look for another provider that will charge less for the procedure. Use Healthcare Bluebook or New Choice Health to compare medical costs. Some medical providers will set up an extended payment plan, with little to no interest. Ask about your options. If you’re uninsured or have little income, some hospitals have charitable funds that can help with payments. Otherwise, consider scheduling any non-urgent medical procedure further in the future to give yourself time to save up money and pay in cash. If you’re able, increase pre-tax contributions to your Flexible Savings Account (FSA) or Health Savings Account (HSA) to help pay for the costs.