You may have seen brochures in your doctor’s office for health-care financing, which is often used for elective medical procedures—such as laser eye surgery, plastic surgery, and cosmetic dental work—that aren’t covered by insurance. These loans, from lenders such as Bank of America and CareCredit (a division of GE Money), are an option for paying your major medical expenses, but financial advisers warn that they can be expensive. “There are lots of them out there charging 19% to 29% interest,” says Chris Cooper, a certified financial planner and social gerontologist in Toledo, Ohio.
Consumers with good credit may be able to find a deal on these loans by taking advantage of zero-interest offers, which typically give you 12 months to repay without incurring any interest. But beware: These unsecured personal loans are similar to credit cards. If you miss a scheduled payment, or don’t pay off the balance within the specified period, you may face interest rate hikes as high as 12% to 29%.
“It’s a huge rip-off if you’re asked to pay medical bills at 27% interest,” says Dillenbeck. Even in today’s tight credit environment, your goal should be to get a rate of 10% or less, and if you’re not sure whether you can meet the payment terms, look elsewhere for cheaper sources of funding.
Life insurance policies
If you have been paying premiums on a life insurance policy for a long period of time, the policy has some cash value that could be exploited as a source of funds. You could either cash in the policy or borrow against it. The latter can be advantageous because the interest rates tend to be low—5% to 8%, typically. Be sure to speak with your financial planner or accountant before you take this step. If you want to borrow against the policy, you need to ensure that the interest that accrues to the policy balance will outpace the interest on the loan. And if you subsequently cash in the policy or let it lapse, the full value of the policy (including the borrowed amount) will be subject to income tax. “You have to make sure cashing in your insurance is OK with the rest of your financial plan,” Cooper says.
