Debt settlement can be used to pay off medical bills at tremendous savings. Medical bills are unsecured debt similar to credit cards and can be paid off for half the balance or even less. Dealing with medical bill debt collectors can be stressful but it is possible to strike bargains through careful negotiations conducted in writing or over the telephone.
Insurance Woes
People without health insurance often face huge medical bills after a hospital stay or multiple visits to doctors. Even a routine doctor's visit can cost several hundred dollars, with serious hospital stays exceeding $10,000. In most cases the doctor or hospital is sure to attempt to collect from you even if it is clear you cannot afford to pay the full amount.
Debt Collectors
The hospital or doctor will try collecting from you directly and after several months the account will be assigned to a debt collection agency. Debt collectors are paid a commission on what they collect and most will initially seek the entire balance. Their collection letters can be intimidating and may suggest that your account is being considered for legal action. Usually that initially is a bluff, although medical debt lawsuits are sometimes filed. However, settlements are usually always available -- even after a lawsuit.
Opening Negotiations
Consumer affairs attorney and debt settlement firms can negotiate your medical debt for a fee. However, the process is simple and you may save money doing it yourself. Negotiating by phone allows for an immediate response, while writing creates a paper trail. Some people inexperienced in debt settlement prefer to start by making an offer in writing. Either method works fine, but it is important to get the final agreement in writing, including the balance you have agreed to pay and the due dates. Settlements are available in lump sums and installments.
First Offer
Starting with a low-ball offer of 20 to 25 percent of the balance leaves room to negotiate. SmartMoney reports that unsecured debt can be settled for 20 to 70 percent of the balance, but few medical debt collectors start with their best offer. The debt collector is more likely to initially demand 80 to 90 percent of the balance. Several weeks or months may pass before the debt collector is willing to settle for half the balance or less. Stay in touch by calling or writing regularly and increasing your offer a bit each time. Increase your offer by 5 percent increments until you have a deal you can afford.
Tax Problems
The Internal Revenue Service treats savings through debt settlement as income. As a result, a $25,000 medical bill settled for $10,000 may result in the IRS increasing your gross income by $15,000, adding to your tax bill. However, a professional tax adviser can offer advice on seeking an exception and not having the savings treated as income. Also you may be able to take a deduction on your taxes for the medical treatment.
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