Credit cards can be a useful tool for consumers, but they should be used for the convenience and benefits they offer. Large numbers of families, however, are relying on credit cards out of necessity, and new data shows that medical bills are largely to blame.
An estimated 69% of families with children say they make sacrifices to meet their medical expenses, according to a recent study Aflac survey. And for 37%, that means relying on credit cards to pay their bills and deal with the consequences.
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The problem with credit cards
Credit cards are a great way to earn rewards for things you already buy. It’s when you fail to pay them, however, that you run into problems.
Whenever you carry a credit card balance, you automatically sign up to pay interest – high interest – on things you’ve charged. Not only that, but too much credit card debt can negatively impact your credit score by causing your credit usage to fall into unfavorable territory. Usage is the amount of available credit you use at one time, and a ratio above 30% is considered detrimental to your score.
But if you are forced to rely on credit cards to pay your bills, and you accumulate a balance high enough to exceed that 30% threshold, your credit score may suffer, making it harder for you to pay. ‘borrow money next time. the time you need.
Avoid credit card debt due to medical bills
If healthcare expenses are driving you to have an unhealthy relationship with your credit cards, your best bet is to rethink your budget and do your best to build up emergency savings. This way, you will have cash reserves to tap into when your medical bills are higher than expected.
Ideally, your emergency fund should have enough cash to cover three to six months of essential bills, but if you can’t meet that goal, save as much as you can. A good bet, in fact, is to save enough money to cover your annual deductible, as you’ll have to pay it off before your insurer picks up the bill for your health care services.
At the same time, factor health care into your budget realistically. Take a look at what your insurance premiums, deductibles, and co-payments cost, and determine how much you should reasonably expect to spend each month. And also, take into account ad hoc situations that may arise from time to time, such as a visit to the hospital. You don’t need to schedule one per month, but it wouldn’t hurt to schedule one visit per year. Aflac reports that 37% of families who have gone to the hospital in the past two years have had to pay $ 500 or more out of pocket. During that time, 23% spent $ 1,000 or more, so if your costs are similar, spread that number over 12 months to set aside money as needed.
Finally, take advantage of a health savings account, if you are entitled to it. To contribute to any of these accounts, you must be enrolled in a high-deductible health insurance plan, currently defined as an individual deductible of $ 1,400 or more, or a family deductible of $ 2,800 or more. The funds you allocate to a health savings account are tax-free, allowing you to make instant savings on your own, reducing your overall financial burden and making it easier to keep track of your health expenses.
Medical bills are often unavoidable, but they can also ruin your finances if you’re not careful. If your health expenses are causing you to depend on credit cards to an unhealthy degree, it’s time to find a better plan – before you find yourself in a world of debt with no end in sight.