Is a Personal Loan a Good Option for Consolidating Medical Debt?

If you're someone who's grappling with medical debt, you should know that you're not alone. An estimated 1 out of every 10 Americans has medical debt, says the Kaiser Family Foundation. And a good 3 million Americans owe more than $10,000.

If you're struggling to keep up with your various medical bills, then you may be thinking of taking out a personal loan and using it as a means of consolidating those different payments. Doing so could make your life easier, so there's value in that. But consolidating medical debt with a personal loan might also end up costing you more.

You might end up spending more on interest

Personal loans are commonly known as a cost-effective way to borrow money. You'll generally pay a lot less interest on a personal loan, for example, than you will on a credit card balance.

Plus, personal loans are very flexible. You can sign one for pretty much any purpose, whether it's to renovate your home, take a vacation, or pay off existing debt.

Now, if you have a string of medical bills you're trying to keep tabs on, the idea of consolidating your debt into a personal loan might be appealing since it can allow you to make a single monthly payment instead of multiple payments. But even though personal loans are known for their competitive interest rates, right now, they're expensive.

The reason is that pretty much all borrowing is expensive these days following a series of interest rate hikes from the Federal Reserve. The Fed started raising interest rates last year in an attempt to slow the pace of inflation. But now, borrowers are looking at higher costs across the board, which means that even if you have a fantastic credit score, you might end up with a personal loan rate that's not so appealing.

But that's not the only reason to think twice before consolidating medical debt with a personal loan. Often, medical providers who let patients pay off their bills over time offer no-interest payment plans, or really low-interest plans. So you'll need to take a close look at the interest you're paying now, if any, to see if a personal loan really makes sense.

Perhaps you're paying a maximum of 3% interest on your medical bills now. A personal loan might easily charge you three times that much interest, especially given where borrowing rates are sitting today. And there's no sense in raising the interest rate on your debt so it costs you more.

You may just want to get yourself organized

Consolidating medical debt into a personal loan might offer more administrative benefits, so to speak, than savings-related benefits. So if your goal there is really to make it easier to keep tabs on your payments, a spreadsheet can help.

List all of your bills and their various due dates on a spreadsheet and set calendar reminders so you don't fall behind on your bills. You may also be able to set those bills (or at least some) to pay automatically out of your checking account so you don't have to worry about missing one.

There are plenty of good reasons to turn to a personal loan when you have a need to borrow money. But in the case of medical debt, it's important to look closely at the interest you're paying versus the interest a personal loan will charge when making that choice.