Major Life Challenges Blog Series

We are taking a closer look at some of the big issues we all can face in our lifetime. Each topic will be featured as a blog series.

Medical Emergency Strikes: Who Do I Pay 1st?

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Deciding who to pay first when you are struggling with debt of any kind, but medical bills can certainly become overwhelming as you may be receiving calls from numerous creditors and collection agencies who all want to be paid, right now! 

Medical Emergency Strikes: Who Do I Pay 1st?When money is tight and you know there isn't enough to go around it is important to develop a plan to pay your high priority bills and a little something to all the rest. But, how do you know what is a priority and what isn't and how can you develop a plan when it all seems so overwhelming? 

The stress of medical emergency alone is enough to cause many of us to crawl under the covers and tune out the world around us. When faced with a loss of income due to a medical emergency you may be forced to make decisions you wouldn't otherwise make, paying less to your creditors, taking on more debt, seeking help, or even filing bankruptcy.  

Everyone's situation is different, but here's an example of how you can prioritize and put a plan in place. 

High Priority Debts 

  • Think home first.  If you or a loved one is ill or injured you are most likely recovering at home and losing your safe haven would be devastating. Failure to pay your rent or mortgage may result in eviction or foreclosure.  
  • Day to day essentials.  Groceries are essential to keep you and your family healthy, so make sure your budget allows for this necessary expense.  There are obviously ways to cut back and save, find what works for you and start implementing a strategy right away. Keeping up with medical insurance premiums is more important now than ever, make sure you keep up with the payments to avoid a lapse in coverage.
  • Tax debt.  Tax debt comes in many forms income taxes, property taxes, and federal taxes.  The government has many collection rights that differ from other creditors. Failure to pay tax debt may have series consequences. 
  • Child support.  Child support that is court ordered can't be ignored. If you neglect to pay support you may face prison or wage garnishments. 
  • Student loans.  Student loans are backed by the government and are forced collection for failure to pay may result in wage garnishments, seizure of tax refunds, and denial of new student loans and grants. 

Low Priority Debts 

  • Avoid utility disconnections.  Often times you can make a minimum payment to keep your service or work out alternate payment arrangements.
  • Keep the car?  Sometimes it takes a drastic situation such as a medical emergency for us to realize we may have more than we need. Can your family get by with one vehicle instead of two? Or, maybe you don't need a car at all. Consider your options carefully; you may be able to cut out this major expense. However, if you plan to keep the car be sure to keep your payments current or you may be faced with repossession.
  • Unsecured loans. These include credit card debts, and doctor or hospital bills, without collateral there is little that can occur for short term non payment.
  • Loans secured by household goods. Creditors rarely seize the goods due to their low market value and the difficulty in retrieval without involving the courts.  

Next Steps

After you have prioritized your debts and know where you stand you can develop a plan that works with your budget. When it comes to paying your unsecured debt including medical bills and expenses you have several options.

Consider a Debt Management Plan 

Maybe your unsecured debt has become overwhelming and you can't keep up with the minimum payments or have fallen behind. As a result your creditors have increased your interest rates and added fees. The likelihood of you continuing to manage your debt on your own has become too much for you to handle. You may want to consider entering a Debt Management Plan.   

Debt Management Plan providers work directly with your creditors to negotiate new terms for the repayment of your debt such as, reduced interest rates, lower monthly payments, and waived fees such as late fees and over the limit fees.  

With a DMP you will make one payment to a debt relief provider who will then disperse the funds to your creditors each month.  A debt management plan is a great option for those who just need better term to repay 100% of their debt.  

Consider a Debt Settlement Plan 

If you find yourself scraping by just to pay the essentials like rent, food, and utilities, you may want to consider a Debt Settlement Plan.  Debt Settlement is an attractive alternative to bankruptcy for those who want to pay back at least a portion of their debt, but cannot afford the Debt Management Plan payment, and may have stopped paying their unsecured creditors.  

With Debt Settlement, you make monthly deposits to a Settlement deposit account in an amount you can afford. You do not make monthly payments to your creditors, and your provider works to negotiate with your creditors for a less-than-full repayment.  

When settlements are reached with creditors, settlement payments are paid from the Settlement deposit account. There are definitely pros and cons to using Debt Settlement to pay off your debt so it is important to understand what to expect.  

Bankruptcy as a last resort 

If you can't afford to pay anything towards your unsecured debt you may consider a Bankruptcy.   If your financial situation leaves you unable to pay back even a portion of your debt, you may want to explore whether a bankruptcy makes sense for you. Keep in mind a bankruptcy stays on your credit report for 10 years, making it hard to get credit, buy a home, get insurance, or sometimes get a job; so use this option only as a last resort. 

Facing extra expenses and debt after a medical emergency is never easy, but figuring out how to prioritize your debts and developing a plan can keep you from facing financial disaster for years to come.   

More Posts From the Series, Medical Debt; Expecting the Unexpected:

My Medical Debt

7 Things to Know about Paying Off Medical Debt

Suzanne CramerSuzanne Cramer

Suzanne is a certified credit counselor and a Social Media Specialist for CareOne Debt Relief Services. Suzanne writes for Divorce, Debt and Finances and A Straight Talk on Debt. Follow Suzanne on Twitter @ADivorcedMom and @AskCareOne where she shares her insights on divorce and managing your finances.

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