Millions of Americans struggle to pay their medical bills.
According to the U.S. Census Bureau, 19% of U.S. households had medical debt in 2017. The median amount owed by those with medical debt was $2,000. The median amount owed by those with medical debt was $2,000. According to the same survey households with Black or Hispanic members were more likely to have it than households with White non-Hispanic members, and households with Asian members.
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A home equity line credit (HELOC), which taps into your home equity to provide cash for a medical bill or if you are looking for a procedure in the future, can be very appealing. HELOC interest rates currently are very low making them an affordable financing option. However, lenders are becoming more strict about the origination of HELOCs. This makes them less accessible and has other important drawbacks.
What is a HELOC?
HELOCs are a great option for people who need cash. HELOCs are a popular tool because they allow people to access cash quickly,” Sarah Catherine Gutierrez (certified financial planner (CFP), CEO of Arkansas-based Aptus Financial, says.
HELOCs allow you to borrow against equity in your home, and then pay the debt off over a longer period of time, usually around 20 years. A HELOC allows you to borrow up to 15% of the equity in your home, which is the value of your home less your mortgage.
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There are pros and cons to using a HELOC to pay medical expenses
A HELOC is a financing option that can help you finance major medical expenses. This is true even if your home is worth less than the mortgage. Before you apply for a HELOC, consider the pros and cons of using it to pay medical expenses.
Pros
- Lower interest rates are often offered than personal loans and credit cards
- Maximum repayment term of 20 years
- Access to credit line on a continuous basis
Cons
- Lenders may limit availability or discontinue offering HELOCs entirely, or tighten borrowing requirements.
- Borrowers are at risk of over-borrowing
- If you default on your loan, you risk losing your home
Gutierrez warns that “I believe they’re too precarious.” It can affect the mortgage lenders and housing market when it is a collective emergency. She says that HELOCs can be frozen by many banks at once.
This was during the COVID-19 epidemic, when major banks such as Chase and Wells Fargo stopped issuing new HELOCs. Bank of America and other banks also imposed stricter credit requirements on borrowers to limit who was eligible for HELOCs during the pandemic.
There is always the possibility of spending too much if you get a HELOC. The idea of spending extra money on home improvement or other expenses might appeal to you once you have access the cash flow from the HELOC.
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The Most Expensive Medical Expenses
It can be very expensive to pay for medical expenses. You could be responsible for thousands of dollars even if you have insurance. Healthcare.gov’s 2021 plan year had out-of pocket maximums of $8,550 per person and $17,100 per family. This is how much you could have to spend out-of-pocket if you have a plan that has this limit.
The cost of medical care can be higher if you don’t have any health insurance. These are the costs for common procedures and treatments that don’t require insurance according to PeopleKeep (a developer of software for employee health benefits).
- Broken leg: A cast can cost $863 if you have a broken leg.
- Hospital Stay: You can expect to pay around $11,700 if you are required to stay overnight in a hospital for treatment or observation.
- Pregnancy and delivery: Expect a high-priced bill if you’re expecting a baby. Normal pregnancy and delivery costs $18,847.
- Kidney Stones: Kidney stones can be quite common. Kidney stones are formed when a small, hardened deposit forms in the kidneys. The average cost of treatment for kidney stones is $28,817
- Appendectomy: This is the procedure that doctors perform to remove your appendix if you have appendicitis. The average cost of the procedure is $17,581.
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The above-mentioned costs can be mitigated by health insurance. If you aren’t insured or your plan has high out-of pocket costs, you may have to pay a lot more for the treatment you need. A HELOC may help you pay these costs, but there are other options.