Which Should I Pay First: Credit Cards or Medical Bills?

If you don't have enough money each month to meet your obligations and you are falling behind on your debts, you need a plan to work your way out. It's wise to make a schedule of your debts and decide which are most important to pay first. While it should be obvious that your rent or mortgage and your essential utilities take precedence, it can be harder to decide when it comes to other types of debt.

Unsecured Debts

Credit card balances and medical bills are both what's known as unsecured debts. In other words, you did not borrow against any asset such as a house, and your creditor has nothing it can repossess in lieu of the debt. While in this way they are similar, there are some differences in how you should deal with credit card and medical debts.

Be Proactive

If you're facing significant unsecured debts, never simply ignore them. With medical debt especially, it important to pay attention and be proactive in dealing with it. Check every bill you receive for errors or overcharging. If you have insurance, call your insurer to question why portions of the bill were not covered. In both these ways you may be able to reduce your personal liability. If you can possibly avoid it, do not pay for medical expenses on a credit card, as this will make it harder for you to claim them as a tax deduction if you qualify. With credit cards, while you make your debt plan, ensure you're paying at least the minimum to avoid accruing fees and delinquency notices on top of credit charges.

Interest

Check the interest that's being charged on both your credit card balances and your unpaid medical bills. Unless your medical bills are already in collection, you will likely find that the credit card interest is much steeper, and the amount you owe each month is mounting up more quickly. This may give your credit card balance priority as you're deciding how to pay off your bills.

Negotiation

If you are in difficulties paying a medical bill, it's often straightforward to find a human being to talk to in the medical office's billing department. Explain your situation to her and ask if you can negotiate a payment plan to pay at least some portion of the bill each month until it's paid off. Most medical institutions are open to this type of approach. Credit card companies do not have the same kind of flexibility.

Credit Implications

Credit card balances are automatically recorded on your credit report and will affect your score. Unpaid medical bills are unlikely to register on your report unless they are turned over to a collections agency, something that might happen at around 180 days delinquency. Again, if you have called the medical office to explain your situation and have set up an acceptable payment plan, you should be able to request that the bill is not sent to collection and does not impact your credit score. This factor also makes credit card balances more urgent.