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Medical debt may disproportionately impact credit scores

Readers in Michigan are fully aware that health care costs are high and will only continue to rise. In 2011 alone, Americans paid $307.7 billion in health care costs. Thousands are drawing from their own pockets -- even if they have some health insurance coverage -- to get the care they need. As a result, many people are feeling the effects of incurring large amounts of medical debt.

When a person has unpaid debts, creditors or debt collectors report this information to the credit agencies. Unattended debt has a negative impact on credit, which can severely limit a person's financial freedom. As Detroit families continue to deal with rising health care costs, they may also be looking for debt relief in order to get their credit score back on track.

One of the problems with medical debt is that related information can be inaccurately delivered to credit reporting agencies. As such, the Healthcare Financial Management Association is creating recommendations for the manner in which medical debts are reported, which could have a significant impact on a person's overall credit score.

Among the potential recommendations, there is a possibility of making reporting more transparent. For example, when people work to reduce medical debt, their payments would be reflected in the information presented to credit agencies. This would allow scores to accurately incorporate efforts to pay off debt. Furthermore, there is federal legislation under consideration that would require creditors to report changes in debt as soon as it's paid off.

Knowing how medical debt can adversely impact credit scores, it may be important to look at options for debt relief. In some cases, personal bankruptcy might be the best way to clear debt and move forward. At the same time, however, there may be options for debt relief that are better suited for each person's unique financial situation.

Source: ModernHealthcare.com, "HFMA looks at solutions to patients' medical-debt burdens," Gregg Blesch, June 19, 2013

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