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  • Writer's pictureJames Heinz

Handling Medical Debt Settlement in Collections

Jenny felt her heart sink when she got the notice - her unpaid medical bills had been sent to collections. She knew dealing with this debt wouldn't be pleasant, but avoiding it could severely damage her credit score. Jenny realized she needed to address her medical debt in collections to prevent further damage to her credit.

If you've found yourself in a similar situation and are wondering how to settle medical debt in collections, don't panic. You are one among the millions of Americans who struggle with medical debt each year. While it's an uphill battle, there are strategies you can use to negotiate and resolve these debts in collections. This guide will walk you through the process step-by-step.

Understanding Medical Debt Settlement in Collections

how to settle medical debt in collections

When you fall behind on medical bills, the healthcare provider or hospital will eventually hand over your account to a debt collection agency. This third-party company may either own the debt or have the right to collect payment on behalf of the original creditor.

A few key things happen at this point:

  • The debt is reported to the major credit bureaus, severely impacting your credit score

  • Collection efforts ramp up with frequent calls and letters demanding payment

  • In some cases, more fees and interest charges may be added, depending on state laws and the original terms of the debt

The goal is settling the medical debt in collections as quickly as possible. Debt collectors are motivated to recover at least a portion of what you owe rather than getting nothing.

Partnering with experts like Shepherd Outsourcing, which understands personalized debt management, can make this process smoother and less stressful!

Now that you understand the basics, let's dive into the options you have.

Two Paths for Settlement

There are two potential avenues for reducing and paying off medical debt that has entered collections:

  1. Negotiating with the Original Creditor: In some cases, the original healthcare provider may still own the debt even after sending it to collections. You may be able to settle directly with the provider, often for a larger percentage of the total owed.

  2. Dealing with the Collection Agency: If the debt has been sold to a third-party collector, you'll need to negotiate a settlement with that agency. They are often willing to accept a drastically reduced lump sum payment.

The negotiation strategies differ between original providers and collection agencies, but the end goal is the same - agreeing on an amount you can actually afford to pay.

Impact on Your Credit Score

Having any debt sent to collections is a major negative mark on your credit report. Your credit score can drop significantly once the debt is reported as being placed in collections, though the exact impact varies based on your existing credit score and history.

There is a bright side though - the credit impact decreases over time as the debt ages. And once you've settled the full amount, it will be updated on your report as "paid."

Additionally, new medical debt may not impact your score right away:

  • Major credit bureaus now have a 180-day waiting period before reporting new unpaid medical bills

  • Small medical debts under $500 are often excluded from credit reports entirely

Tools like credit monitoring can help you stay informed and take action quickly on any new medical bills sent to collections. Catching them early gives you more leverage in settlement negotiations.

So, how exactly can you use this leverage to your advantage?

How to Negotiate with Collectors?

Debt collectors are businesses, and their goal is recovering as much money as possible. But they'd rather get something from you than nothing at all. This gives you leverage to negotiate settling your medical debt in collections for a reduced lump sum.

Some effective strategies include:

  • Asking for a substantial reduction upfront before making any payment commitments

  • Getting the full settlement terms in writing before you pay

  • Negotiating to have additional fees and interest charges waived

  • Offering to pay a lump sum that's 25-50% of the total owed

  • Using free debt settlement tools and templates to guide you

If the numbers still don't work for your situation, you can also discuss setting up a payment plan. Or hire an expert medical billing advocate to negotiate on your behalf.

Don't Pay? They Can't Send You to Jail

Unpaid debt is a civil matter, not a criminal one. Debt collectors cannot have you arrested or thrown in jail for not paying medical bills. However, they can potentially take other legal actions such as:

  • Garnishing a portion of your wages

  • Placing liens on your property

  • Suing you in civil court for the full balance

Knowing your rights under the Fair Debt Collection Practices Act (FDCPA) protects you from being harassed or treated unfairly. If a collector violates these laws, you can report them and take legal action.

Consulting with a debt management expert like Shepherd Outsourcing can ensure you're protected and properly advised on the best course of action!

Understanding your rights is crucial, but there are additional steps you can take to prevent your debt from spiraling out of control.

Preventative Measures

Once you're behind, it's an uphill battle settling medical debt in collections. Taking these steps upfront can help prevent your debt from reaching that point:

  • Review all medical bills promptly and question any potential errors

  • Stay informed about what your health insurance does and doesn't cover

  • Communicate with providers immediately if you foresee trouble paying

  • Negotiate payment plans or financial assistance before bills go to collections

By being proactive, you have more options for settling on reasonable terms with the original provider. This protects your credit and avoids an even bigger headache.

Partnering with Shepherd Outsourcing early can provide additional support and strategies to manage your medical bills effectively!

If you're unable to manage a lump sum payment, there are still other alternatives worth considering.

Alternatives to Lump Sum Settlements

If you simply can't afford to settle your medical debt in collections with a lump sum payment, don't lose hope. You still have some alternative paths to explore:

  • Request an affordable payment plan: Most agencies will work with you to set up a structured repayment schedule you can handle.

  • Investigate financial assistance: There may be financial aid or forgiveness programs you qualify for that can settle your settled debts retroactively.

  • Contest questionable charges: Even after the bills are in collections, you can dispute any charges that seem inaccurate or illegitimate.

While challenging, these alternatives allow you to resolve the debt over time fully. Just be sure to document any arrangements in writing properly.

Conclusion: Taking Control of Your Medical Debt

Dealing with medical debt in collections is undoubtedly stressful. But knowing the laws and your rights gives you more power than you may realize. With the right approach and mindset, you can reach an affordable settlement.

The key is being proactive. If you're struggling with unpaid medical bills, don't wait until they're in collections to start negotiating. Get ahead of the problem and give yourself the best chance to settle medical debt with minimal credit damage. Your future financial health will thank you.

Shepherd Outsourcing can help you in this journey.

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