Medical debt is making it harder for some Americans to get mortgages

Unexpected medical bills are doing more than driving up debt. For many Americans, those debts are also making it more difficult to get a mortgage.

Buyers with medical debt are more likely than others to be denied a mortgage, according to a report on consumer housing trends by online real estate marketplace Zillow.

Zillow’s survey found that 38% of buyers who owe money for health-care expenses said they’d been turned down for a mortgage because of medical debt. That was a significantly higher rejection rate than for buyers with student loans, at 28%, or credit card debt, 22%.

Rising costs — including health-care expenses — have cast a shadow over the country’s low unemployment rate and economic gains, experts say.

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Of the 13,000 people surveyed by Zillow, about half of all renters and one-fifth of all homeowners said they couldn’t cover an unforeseen $1,000 expense. For those with medical debt, that number jumped to nearly two-thirds of renters and 44% of homeowners.

That comes as Americans are spending more on health care than residents of any other developed country.

On average, almost $17 for every $100 we spend goes to health-care expenses, according to the Organization for Economic Cooperation and Development.

Often those bills come unexpectedly. In the past year, 137.1 million adults have been hit with medical financial hardship.

And many Americans are turning to plastic to settle those debts, according to a recent survey from CompareCards.com.

The website found that 33% of cardholders are in debt because of medical bills. And nearly 60% said they used a card because they had no other way to pay.

If you have unexpected medical bills, there are several things you can do.

Negotiating is the first step that Carolyn McClanahan, founder and director of financial planning at advisory firm Life Planning Partners in Jacksonville, Florida, tells people to pursue.

Make sure everything on the bill is correct, McClanahan said, and that you actually received all the services they’re billing you for.

If you still can’t afford to pay, check to see if the hospital or medical organization provides charity services and whether you qualify for forgiveness, she said.

If that doesn’t work, ask if they will let you set up a payment plan. Some hospitals will be OK with low payments, as long as you’re making progress toward the debt, McClanahan said. Plus, they may not charge you interest.

Make sure that you’re getting the best interest rates for your balances.

If you have debt sitting on a high-interest card, consider transferring the balance to a 0% credit card.

You may also use a medical credit card for out-of-pocket expenses not covered by your insurance.

These cards, which are offered by companies such as CareCredit, have special financing you may not get on other cards. They’re interest-free for a few months as long as you make your monthly payments on time.

After that period, though, be sure to pay the balance off in full to avoid deferred interest that will charged from the original date of purchase.

Those terms are typical with retail cards and medical cards, but not with other general-purpose credit cards, noted Matt Schulz, chief industry analyst at CompareCards.com.

“Basically, you’re paying medical expenses the same way you might buy a refrigerator or TV,” Schulz said.

The key thing to remember, even during a medical emergency, is you still want to read the terms and conditions of any loan before you sign.

“The last thing anyone wants to do during times like that is read financial fine print,” Schulz said. “It’s important, though.

“Your rushed decisions can end up costing you in a big way in the future.”

An alternative to racking up any kind of credit card debt is to take out a personal loan. The average rate on a credit card is about 17%, according to Bankrate.com, while personal loan rates are generally closer to 11%.

The bottom line is you should save more money than you think you’ll need for any unexpected medical expense.

Take advantage of health-care savings opportunities during open enrollment for medical benefits.

If you haven’t enrolled yet, consider choosing a high-deductible health plan with a health savings account. You can put money into an HSA tax-free and then use those funds to pay for qualified medical expenses.

If you don’t have access to an HSA, consider putting money in a flexible spending account, if your company provides it.