Medical expenses piling up? A HELOC may be right for you

by Kate Gillan | Citizens

Medical expenses piling Up? A HELOC may be right for you

Health care services can be expensive, and while insurance might cover the costs of most services and treatments, sometimes one finds themselves still on the hook for hefty healthcare bills. Ideally you have established an emergency savings fund for such instances, however, sometimes healthcare costs push beyond what we've planned for and require us to explore financing options. When that time comes, it's important to find a borrowing plan that's right for you.

 If you're a homeowner, a home equity line of credit (HELOC) is an increasingly versatile way to pay for different life expenses. Since it’s secured by your home equity, A HELOC may offer lower interest rates than a personal loan or credit card. The repayment period on a HELOC is usually 15 years, meaning after the 10-year draw period, you have 15 years to pay down the outstanding loan balance and any accrued interest. These longer repayment terms may prove attractive to borrowers looking to achieve lower monthly payments. During this period, most lenders only require you to make monthly interest payments on the amount you have taken from the larger loan. Though it varies by lender, you can usually borrow up to 85% of your home’s equity.

 You may be thinking, a HELOC sounds a lot like a credit card. But there are still differences. While credit cards are similar to HELOCs in that you draw from a line of credit, they differ in that credit cards are usually used for smaller items (such as a television, or groceries) than HELOCs are. And while most people associate HELOCs with large home improvements, savvy homeowners can also use them in out of the box ways, such as paying for medical bills.

Pros and cons of using a HELOC to pay medical bills

It can be helpful to weigh the advantages and disadvantages of using a HELOC for medical expenses. Below, you’ll find arguments for both. Sometimes you can pay for a portion of a bill, and your health insurance covers the rest. But if not, you could consider using a HELOC to cover medical procedures that might not be covered, such as cosmetic, dental, or even fertility treatments. Only you know what’s right for you and your personal financial health. Here are some pros and cons to help you make up your mind if a HELOC fits your situation with medical bills looming:

pros:

• Lower interest rates: The interest rate for a HELOC is typically lower than what you’d get through a personal loan or credit card.
• Borrowing flexibility: With no upfront draw requirements, a HELOC allows you to borrow what you need, when you need it. There’s no need to worry about borrowing too much or too little, because you only are required to pay interest and principal on what you borrow. For example, if you open $100,000 line of credit to help pay for elective surgery and subsequent physical therapy, a HELOC allows you to draw money as the respective bills are due.
• Repayment flexibility: A HELOC offers borrowers a repayment period of 15 or more years, that in turn can result in lower monthly payments than, say, a personal loan that may require repayment within a 5-year period.
• Spending flexibility: There are no restrictions on how HELOC funds can be used, so your credit line can be drawn on for a plethora of medical bill, home renovations, or debt consolidation efforts. 

cons:

• Taking on debt: A HELOC may offer better borrowing terms than other financing options, however, you still will be taking on the repayment of a loan. So make sure your cash flow allows for the necessary monthly payments.
• Risk of foreclosure: The biggest risk to a HELOC is losing your home if timely payments are not made, or if you can’t pay them at all.

Tips to avoid unnecessary medical costs

Medical expenses can arise sporadically, so make sure to budget ahead. But let’s talk about how to prepare for these costs in the first place. Medical bills can be daunting, confusing and pile up quickly. There’s nothing more anxiety producing than getting multiple medical bills marked with bright red “urgent” across the envelope in your pile of mail. Here are five steps you can take to prepare:

1. Make sure to ask for an itemized list of charges so you can review and look for any mistakes, overcharges or discrepancies. Hospitals and doctor’s offices can make errors.

2. Call your health insurance provider. It’s possible you received the bill before insurance has offset some of the cost. You want to make sure the bill has been sent to your insurance company before it arrives in your mailbox.

3. Ask your doctor’s office about payment plans to help alleviate a large lump sum cost you can’t afford. Every office and billing policy is different.

4. Inquire about your bills and plans quickly after receipt, so you can pay in a timely manner (or make arrangements.) This will prevent incurring penalties due to late payments.

5. Make sure to get a clear explanation as to any flexibility your provider offers. This will help you stay on top of your payments and plan ahead for next time.

The bottom line

Medical bills are a growing burden for many American families, and borrowing against your home’s equity could be one way to offer some relief. There are also medical bill advocates you can discuss payment plans with at most hospitals or doctor practices. Only you and your loved ones can decide if using a HELOC is right for you. If you do decide to take one out, be sure to do your research. Or you can talk to a Citizens advisor at your local branch. We are always here to help.

Ready for Citizens FastLine®?

If you are taking on a renovation project, consolidating high-interest debt or you just want a worry-free getaway, a Citizens HELOC can help finance your next big goal right now. And our home equity specialists are here to help guide you. Click below to explore more about our fast and convenient Citizens Fastline application process to help fund your goals today with a HELOC.

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