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How to Handle Medical Debt as a Self-Employed Entrepreneur

Being self-employed can be an incredibly rewarding experience. You get to be your own boss, set your own schedule, and pursue work you’re passionate about. But it also comes with some big challenges, like getting health insurance. When you don’t have employer-provided insurance, you can easily end up with massive medical bills that become medical debt.I’ve been self-employed for over 10 years now, so I know firsthand how scary and stressful medical debt can be when you’re trying to run your own business. Over the years, I’ve learned a lot about how to handle medical debt and avoid having it ruin my finances or business.In this article, I want to share what I’ve learned so it can help other entrepreneurs in the same boat. Dealing with medical debt is hard but definitely not impossible with the right information.

How Medical Debt Happens

First, it helps to understand exactly how medical debt happens in the first place.When you’re self-employed, you have a few options for health insurance:

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  • Buy a private individual health insurance plan (these tend to be very expensive with high deductibles)
  • Get insurance through the Healthcare Marketplace established by the Affordable Care Act (prices and deductibles vary)
  • Go without health insurance and pay for everything out-of-pocket

The last option might seem tempting when money is tight. But it’s incredibly risky because one major medical issue can easily cost tens of thousands of dollars or more.Even with health insurance, you’re likely facing high deductibles and co-pays. The average deductible for individual plans is around $4,500


. That means you pay 100% of costs until you hit that deductible amount.So whether you’re uninsured or under-insured, you can see how just one hospital visit can easily spiral into thousands in medical bills.And if you can’t afford to pay those bills all at once, they get sent to collections and start damaging your credit. Now you’re dealing with medical debt collectors calling nonstop and court judgments against you.Scary stuff, right? The good news is there are ways to handle it.

First Steps When You Get a Big Medical Bill

Ok, so you just got a huge medical bill that you definitely can’t afford to pay. Don’t panic yet! Here are some initial steps to take:

  • Review the bill for errors – Medical billing errors are very common. Make sure you weren’t charged twice for the same thing or billed for services you didn’t get. This happens more often than you’d think so review closely.
  • Ask about financial assistance – Most hospitals have financial assistance programs or charity care options for people under certain income levels. See if you qualify for any discounts.
  • Negotiate with the hospital – You can often negotiate medical bills down substantially just by asking. One tactic is to offer paying it all immediately if they’ll give you a discount.
  • Set up a payment plan – If the hospital won’t negotiate much, ask to set up a monthly payment plan so it’s more manageable for your budget.
  • Get help – There are nonprofit credit counseling agencies and medical billing advocates who can help negotiate bills down for free or very low cost.
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The key is don’t just ignore big medical bills. Talk to the hospital right away to start handling it.

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How Medical Debt Impacts Your Credit

Now let’s talk about how medical debt actually impacts your credit and finances if you can’t pay it off quickly. This part is important to understand.Medical debt typically goes through a few stages:

  • You get the initial bill from the hospital
  • If unpaid after 60-90 days, it gets sent to collections
  • The collections account goes on your credit report and hurts your credit score
  • After 180+ days unpaid, the collector can sue you in court for a judgment

As you can see, it progresses from bad to worse!Having medical collections on your report often drops credit scores by 100 points or more


. That can make it hard to qualify for business loans, credit cards, and other financing you need to run your business.If it turns into a court judgment, the collector can garnish your wages or put liens on your business accounts and assets.So medical debt definitely can’t be ignored. But here’s the good news…

How to Deal with Medical Debt Collectors

Now the medical bill is in collections. Scary right? But don’t panic! Here are some tips for dealing with medical debt collectors:

  • Don’t ignore calls or letters – I know it’s tempting, but this will just make things worse. Return their calls and letters promptly.
  • Keep detailed records – Document every conversation, letter, and payment. This protects you if there are disputes.
  • Send debt validation letter – You can send a letter requiring them to verify the debt is valid and actually yours. This is your legal right under the Fair Debt Collection Practices Act


  • Negotiate – Collectors often will settle for less than the full amount, sometimes as low as 25% of the original bill. Get any deal in writing before paying.
  • Offer payment plans – If they won’t negotiate much, see if they’ll let you pay it off over several months in installments.
  • Don’t panic – Collectors use aggressive tactics, but know your rights. You have power too!

Following these tips will make the collections process much smoother. The key is to engage with the collector right away and take control of the situation.

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How Medical Debt Impacts Your Credit Score

Now let’s talk specifically about how medical debt affects your credit score so you understand what’s happening behind the scenes.Medical debt that goes to collections starts damaging your score in a few ways:

  • Payment history – It will show as a negative mark on your payment history, which is 35% of your FICO score.
  • Credit utilization – The balance owed will increase your credit utilization ratio, which is 30% of your score.
  • Number of accounts – Each collection account negatively impacts your “number of accounts” factor, 10% of your score.
  • Credit age – The new collection accounts lower your average credit age, which is 15% of your score.

As you can see, medical collections can really trash your credit!Luckily, credit scoring models like FICO are adjusting how they handle medical debt:

  • Paid medical collections won’t be counted – If you pay a medical collection, it will be removed from your credit reports and stop damaging your scores. This is huge!
  • 6 months before reporting – Medical bills less than 6 months old will not go on your credit reports. This gives you more time to pay before it impacts your credit.
  • Less impact from medical collections – Newer FICO models actually reduce the credit score damage from unpaid medical collections.

These changes will help protect consumers from unfair credit score damage due to medical issues. But it still helps to get the bills paid or removed whenever possible.

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Strategies for Paying Off Medical Debt

Now let’s go over some strategies for actually paying off medical debt to get it behind you. Here are some options:

  • Payment plans – Talk to the hospital and collection agency to arrange longer payment plans that work for your budget. Many will do 12, 24, or even 36 month plans.
  • Credit cards – Balance transfer or low interest credit cards can give you more time to pay it off without interest. Just be careful of fees.
  • 401k loan – You may be able to borrow against your 401k retirement account to pay medical bills without penalty.
  • Personal loans – Banks, credit unions, and online lenders offer installment loans that may have lower rates than credit cards.
  • Home equity loan – If you have equity in your home, a home equity loan or line of credit can provide lower interest financing.
  • Business loans – Explore small business loans or lines of credit that offer reasonable rates and flexible repayment terms.
  • Bankruptcy – For extreme medical debt, bankruptcy may be an option to discharge it completely. But it comes with tradeoffs like hurting your credit.
  • Settlements – Debt settlement companies can negotiate down large medical bills, but charge hefty fees.

As you can see, there are lots of ways to pay off medical debt if you just get creative! The key is finding an option that fits your budget and business needs.

How to Rebuild Your Credit After Medical Debt

Let’s shift gears and talk about rebuilding your credit once you’ve paid off medical collections. Here are some tips:

  • Pay down balances – Keep credit card and loan balances low to improve your credit utilization ratio.
  • Dispute paid collections – You can send letters disputing paid medical collections to try getting them removed from your credit reports.
  • Become an authorized user – Ask a friend or family member with good credit to add you as an authorized user on a credit card. This can raise your scores.
  • Open new credit – Applying for new credit cards and loans – and paying them on time – will help improve your payment history.
  • Write goodwill letters – You can write letters to creditors asking them to remove negative marks for goodwill reasons. This sometimes works!

Rebuilding credit takes time but going positive for 12-24 months will help most of the damage fade away. And paid medical collections coming off your reports going forward is great news.

Protect Yourself Going Forward

Finally, let’s talk about some ways you can protect yourself from getting buried in medical debt again down the road:

  • Get insured – Getting health insurance, even with a high deductible, gives you vital protection from massive bills. Shop the Healthcare Marketplace for your best deal.
  • Open an HSA – If you have a high deductible health plan, open a Health Savings Account to save pre-tax for medical expenses.
  • Ask about payment assistance – Don’t be afraid to talk to hospitals and doctors upfront about financial assistance, payment plans, and discounts. Most want to help.
  • Negotiate costs – Look into medical tourism for big procedures – you can save 50-75% on costs by going overseas


  • Live healthy – Focus on diet, exercise, sleep, stress management, and preventative care. An ounce of prevention is worth a pound of cure.

While nothing can fully protect you from ever having medical debt again, following these tips will help minimize the chances as much as possible.

Final Thoughts

Dealing with medical debt is often an unavoidable reality of being self-employed and a health crisis can definitely derail your business. But in my experience, it doesn’t have to ruin you financially if you handle it correctly.Now that you know your options for negotiating bills, dealing with collections, protecting your credit, and paying off debt, you can take control of the situation instead of just feeling helpless.Medical debt feels overwhelming but just take it one step at a time. And don’t be afraid to get help from nonprofit credit counselors and patient advocates. You don’t have to go it all alone.Here’s hoping you can avoid getting buried in medical debt in the first place. But if it does happen, come back to this article as a roadmap for handling it while keeping your business on track. You got this!Let me know in the comments if you have any other tips for dealing with medical debt as an entrepreneur. We’re all in this together.

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