Can I use a HELOC to consolidate medical debt?

You’ve gone to the doctor to take care of your physical health. That’s a smart move. But maybe now you’re looking at your medical bills and wondering if there’s help for your wallet’s aches and pains, too. 

You have many options to deal with medical debt. One solution that homeowners often consider is a home equity line of credit (HELOC). If you use a HELOC for medical debt, you may be able to get a handle on your payments more quickly than you might with other, more expensive types of debt. 

But using a HELOC for medical debt has its downsides, which you should know about before you make your decision. 

Let’s go through how consolidating medical bills with home equity works so you can make a healthy choice for your family’s finances. 

Can you use a HELOC or home equity loan to pay off medical debt?

The short answer is yes, if you have enough home equity and you meet the lender’s requirements, you can apply for a HELOC. If your application is approved, you could use the money for just about any expense. 

But in doing so, you may lose certain consumer rights and benefits that could help you manage your debt in the long run. 

Why would someone use a HELOC or home equity loan for medical debt?

Here are some good reasons why homeowners might prefer using their home equity to consolidate medical bills:

• Low interest rates. Second mortgages like HELOCs and home equity loans generally come with lower interest rates than other forms of debt, like credit cards and personal loans. That means your monthly payments may be easier to manage, too. 

• Repeat borrowing is allowed. HELOCs have two stages. During the draw period, you can borrow, repay, and borrow more as often as you like, up to your limit. When the draw period ends, you’ll enter the repayment period and can’t borrow more. A draw period could help if you need to borrow more than once.

• Larger borrowing potential. Homeowners with enough equity may be able to borrow more money than, say, with a credit card. That can really help if you have very high bills.

• Interest-only payments. Some lenders allow you to make interest-only payments during the draw period, which could last for five to 10 years. This keeps the payment as low as possible, which could be an advantage if your budget is strained right now, but won’t be in the future. (Making interest-only payments means your balance never goes down. Achieve doesn't offer the option to make interest-only payments.)

What are the disadvantages of using a HELOC to pay medical bills?

Consolidating medical bills using a loan that accesses your home equity isn’t the right choice for everyone. Consider these potential downsides.

• Less home equity. Borrowing against your home equity reduces the amount of equity you have. If you sell your home before your home equity loan or HELOC is paid off, you won’t get as much money from the sale. Also, if home prices fall, it’s possible to owe more on your home than it’s worth. That’s a tough spot to be in and makes it very hard to sell.  

• Foreclosure potential. If you can’t repay your HELOC, your lender can foreclose, just as if you had defaulted on your primary mortgage. It’s rare, but anyone can fall on hard times. That’s important to think about if you have a medical condition that might interfere with your income.  

• Loss of consumer protections. Medical debt is protected in ways that other debts aren’t. By law, you may get more time and additional options to pay off your medical bills. Medical debt may not be as damaging to your credit standing, either. But if you consolidate medical bills with home equity, it’s not considered medical debt anymore. You will no longer qualify for any benefits associated with medical debt.

When might it actually make sense to use a HELOC to pay off medical debt?

How do you know if using a home equity loan or HELOC for medical debt is a good choice for you? If any of these scenarios resonate with you, it might be worth considering:

• You want a manageable monthly payment.

• You’re on financially stable footing, with a solid income and an emergency fund to buffer you against the risk of losing your home.

• You want the option to borrow more money for future medical care or even for other purposes, like consolidating debt or upgrading your home.

• You’re not worried about losing consumer benefits and protections that only apply to medical debt, not home equity debt. 

• You’ve already exhausted your financial assistance options for medical expenses and bills and asked your healthcare provider for a payment plan.

What are the alternatives to using a HELOC to pay your medical bills?

If using your home equity to consolidate your medical bills isn’t in the cards for you, there’s no need to panic. You have more options available to handle medical bills than most other types of debt. In fact, it’s worth researching these options before you make a final decision on a HELOC:

• Payment plan. Many healthcare providers will let you set up payment plans directly with the billing office itself—no extra debt required. Even better, they generally charge very low, or even no, interest. You may need to propose a plan, so check your budget in advance to decide what you can afford.

• Personal loan. If you’re not comfortable borrowing against your home for medical debt, an unsecured personal loan might work better.  

• Medical credit card. Some doctor’s offices offer medical credit accounts. They may charge no interest for several months. Read the fine print carefully, because it could be a deferred interest offer. If you don’t pay off your balance completely by the time the promotional period ends, you’ll be charged interest back to day one, even on the part of the balance you’ve already paid off.

• Financial assistance. Most hospitals are required to offer discounted or free medical care for those who qualify. You don’t need to be below the poverty level, and you get up to eight months to request help.  

What’s next?

Try to get help from your doctor’s billing department before taking out a medical loan. Take some time to gather information on your financial situation, like your monthly income, debt payments, and other expenses. And if your doctor’s office isn’t able to help, a HELOC or home equity loan might.