As cases of COVID-19 continue to decrease across the United States, many news outlets and finance companies are reporting a rise in medical debt and unpaid accounts moving into collections. While medical debt has long been a leading cause of personal bankruptcy in the United States, the economic and healthcare challenges of the pandemic have caused a spike in this type of debt.
While our country continues to recover, many consumers may be looking at ways to resolve their medical debt and reduce calls from collection agencies. Debt settlement may be a method you look to pursue, but it is essential to know the pros and cons of this process and how it can affect your financial future.
What is Medical Debt Settlement?
A third-party company typically handles the debt settlement process, serving as a bridge between the consumer and the creditor. Working with a debt settlement company means they will negotiate on your behalf to have your creditor accept less than the total amount owed on your medical debt or account. During negotiations, you may have to pay the debt settlement company directly instead of the collection agency.
Once a debt settlement agreement is reached, you will begin paying off the negotiated amount, typically in monthly payments. Once you make your final payment, it is reported to credit bureaus, and your account will be marked as “settled” or “account paid in full for less than the full balance.”
Can Medical Debt Settlement Affect My Credit Score?
The short answer is yes: If the medical practice chooses to report your account to the credit bureaus, It will affect your credit score. While settling a medical debt can relieve your debt and lower your monthly expenses, the “settled” account will remain on your credit report for seven years from the date the account initially became late. Anytime you do not repay the full amount owed on an account, it will harm your credit score.
Is it Better to Pay Off A Medical Debt In Full?
Paying a debt in full will have a more positive effect on your credit score and financial standing than completing a debt settlement agreement. This is because a “paid-in-full” account on your credit report shows lenders and credit bureaus you have fulfilled your payment obligations and paid back your debt.
Does Settling Debt Affect My Taxes?
In addition to affecting your credit score, debt settlement can also affect your taxes. While you may be relieved to have a lower amount owed to the IRS, the amount forgiven may be considered taxable income, which will affect your tax returns in a given year.
By comparison, if you work with a collection agency to pay off your medical debt, you will not have canceled debt reflected on your taxes, as the goal is to have you repay your debt in full.
Working With A Collection Agency vs. Debt Settlement Company
There are numerous reasons why consumers have their medical bills go to collections. While a collection agency’s ultimate goal is to recover debt for their clients, experienced collectors are trained to help consumers resolve their debt and find the solutions they need to pay back what they owe.
Here at Kinum, Inc., our work is not just about collecting past due accounts. It is about building and maintaining connections between our clients and their patients. We believe in protecting the relationships between medical providers and their patients while providing clients with the tools they need to recover accounts and offering patients payment options and solutions that align with the creditor’s needs. This includes payment plans and introducing more flexible payment options.
Have Questions About The Collections Process?
Kinum, Inc. has answers. It is our goal to offer our clients a smarter way to collect. We focus on maintaining positive relationships between businesses and consumers. To learn more about our services and how we can help you, please contact us today at (888) 471-0280.