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What you need to know about debt & chronic illness

Many people living with chronic illness are surprised to learn that they're also dealing with debt - in some cases, lots of it. It's one thing to pay for medical costs, but when your unexpected health issues trigger financial insecurity and leave you unable to work, bills like credit cards can quickly pile up.

The good news is that there are ways out of the debt maze. The first step is understanding how exactly debt works - whether you owe money or someone owes you. Once you know what information creditors collect about you and how they use it, you'll be able to better manage your finances and work towards staying on top of your debts , no matter what disease or condition is throwing things off balance.

How does my diagnosis affect my debts?

Medical debt: Most of us know someone who has dealt with a huge medical expense, and we've all heard the stories of hospital bills in the hundreds of thousands. When unexpected illness or injury hits, insurance plans that limit your annual coverage can end up leaving you on the hook for big expenses that aren't fully covered by your benefits plan. Making matters more complicated is that some doctors won't allow patients to pay them back - they're required to send bills straight to an insurance company instead. This forces many patients to negotiate a deal with a collections agency for smaller monthly payments.

Credit card debt : If you use a credit card for emergency costs like prescriptions, medical devices , covering caregiving duties, travel to appointments, or even rent if you're not able to work, credit card interest rates can easily spiral out of control. If you have an existing balance with thousands of dollars in interest charges each month , suddenly being unable to work may mean you're even less likely to be able to pay it off.

If this sounds like your situation, the first step is understanding how much time and money it will take for you to climb out of debt - or if it's possible at all .

Getting started

It's important to understand that having a chronic illness can easily lead to overwhelming debts. From medical bills to credit card debt, the process of digging yourself out of these holes takes time and patience. You'll need a plan and dedicated focus to get started.

What does debt consolidation mean? When you take on debt, you also inherit the responsibility of paying interest - or increasing costs over time. Debt consolidation, the act of taking out one loan to pay off smaller debts, can be an effective way to lower your monthly payment amount and shorten your repayment period .

Your overall cost for this loan will be higher than what you're currently paying in interest charges. However, it may help you decrease your monthly payment because that additional expense is spread out into a single lump sum instead of several different bills that need to be paid each month. Plus , it's possible that consolidating your debts could give you more leeway in terms of what kind of terms are attached to the new plan (e.g.: lower interest rates, longer repayment periods).

The right kind of debt consolidation loan

To take advantage of the cost savings and increased flexibility that a debt consolidation plan can offer, you'll need to find a loan that fits your budget. If you're considering refinancing an existing personal or business line of credit, it's important to look at not just how much money you borrow, but what kind:

Credit cards: Some major banks will let you borrow using their existing balance. You can pay off all your outstanding bills and then make one single monthly payment instead of several separate payments each month . This type of refinance is often referred to as "debt consolidation" because it replaces multiple debts with one single bill. Budget-friendly interest rates may available, especially if you have good credit. You can also look for lenders who are willing to extend you a long pay-back period , which could help lower your monthly expenses even more.

Loans: Banks that offer personal or home loans may let you borrow money using an existing account as collateral. Borrowing against the equity in your home is another option, although it's best to consult with a financial planner before considering this route . This type of debt consolidation typically requires larger loan amounts than other types of refinance options, so it might be better suited for people who need to finance major purchases like medical equipment or vehicles.

Consolidating non-debt related credit lines : Sometimes, colleges and universities will allow students to consolidate unsecured credit lines (e.g.: credit cards or bank lines of credit) into one balance that's linked to their student loans. If you have a lot of pre-existing debt, this option could lower your interest rate and help you consolidate everything.

Choosing the right way to refinance: No matter which type of consolidation loan you choose, make sure it's actually going to help you achieve your goals. For example, if paying off all your credit card interest rates is top priority, then refinancing your private line of credit with the lowest possible interest rate might be the best option for you . However, be aware that some lenders may also charge fees for refinancing unsecured lines of credit , so it's important to read each offer carefully before deciding on one lender over another.

Legal details: As you sort through different offers, be sure to ask about all the applicable rates and terms that are attached to the loan before signing any agreements. It's also important to understand how long your new repayment period is . Subsidized loans typically have income-based plans , which allow you to pay back less than what you originally borrowed if your earnings are low . Your lender may offer extended repayment periods in exchange for higher interest rates on some types of loans. And many private lenders will want everything paid back after ten years, with no exceptions. When in doubt, it's always best to consult a financial professional who can help explain the pros and cons of each type of consolidation plan .

So here's my take on it.

As someone who has been there, I know that debt can be intimidating, especially if you've amassed a mountain of medical bills due to an accident or illness. However, I also know that there are lots of options out there for managing your debt - including refinancing your existing loans into one consolidated plan - which can help you save money on interest rates and increase your financial flexibility in the process .

The key is knowing what type of debts you have (e.g.: credit card vs. line-of-credit vs. home equity debt), how much money you need, and what kind of repayment terms would be most beneficial to your bottom line . In most cases, even people with credit can refinance their higher interest loans into lower interest ones, which can end up saving them a small fortune over the course of several years. And as long as you have a steady source of income, chances are good that you'll be able to qualify for at least one loan consolidation plan or another.

If you need a community that will walk you through money, debts, and chronic illness, join my budget brush up here.

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