Getting Rid of Old Medical Debt

Dear Opening Credits,

Last year I had to go to the emergency room. If you can believe it, the total cost for one day was almost $3,900. I did not have insurance at the time. No job because I was a senior at San Diego State finishing up my degree. I graduated and I'm working, but living with friends. I need good credit to rent a place, but I know all this is on there. I need a credit card, too, but I tried and was turned away. I don't want to keep doing that to further ruin my credit. What now? I have no parents to turn to and can't live here forever. 

- Ella 

Dear Ella,

Sadly, I can believe that your brief visit to the ER totaled nearly $4,000. If you really want to be sick, get hold of your original itemized bill. I'll never forget being charged $300 for a bag of saline when I went in for the flu. Unfortunately, such prices are the norm. With or without medical insurance, the costs can really stack up.

Soon after being treated, I'm sure the provider attempted to get you to pay by sending bills and calling you on the phone. How I wish you could go back in time to negotiate with them! You'd be in a much better position today.

Many doctors and hospitals are willing to accept less than the full amount, especially from people without coverage. It would have protected your credit reports and scores, too. Hospitals and doctors don't report to the consumer credit reporting bureaus (Experian, Equifax and TransUnion) unless they charge an account off and sell it to a collection agency. Most collectors do report, so it's highly likely that the bad debts are showing up and hurting your credit rating.

All is not lost, though. You can overcome these problems!

Many landlords check the credit reports of prospective tenants, so add a statement to your credit report file that explains why you owe collection agencies. This is your right under the Fair Credit Reporting Act. In 100 words or fewer, summarize what happened. Attach it by using the online system on each credit bureau's website or call them for assistance. To help you draft that statement, read "How to add a 100-word written statement to your credit report."

The statement won't help with your credit scores, as the collection activity is being factored in, but an individual looking at your credit report will see it and could be sympathetic to your plight. You and I are hardly the only ones to be socked with stratospheric medical bills. Many adults can share a similar horror story.

Another positive is that you have a job. A steady income and enough cash for a couple of months' rent plus a security deposit can supersede your type of credit troubles. If not, you'll have to either continue to live in your current situation or find someone else to live with for a while until things get straightened out.

Getting a credit card may be bit more challenging than a place to live, as lenders do analyze credit scores and probably won't pay attention to your reasons for default. Because the collection accounts are still fresh and the amount owed is not insignificant, you appear to be a potentially risky cardholder. After you situate yourself in a home, I strongly suggest saving up some money to pay the debt off. If you pay what you owe completely, your credit reports and scores will improve radically. You can also attempt a settlement (paying less than you owe), which doesn't rate as highly, but it's still better than an outstanding collection account.

To settle your debt, you will need to find out who currently owns it. That information can be found on your credit report. You can pull your credit reports for free once a year from each of the big three credit bureaus at Once you contact the collection agency, do not offer to pay more than you can truly afford, which can only get you in deeper trouble if you can't meet your other bills. And do not send any money in until you get your agreement in writing from the collector. To find out more about how the debt settlement process works, the article, "What lump sum offers will collectors settle for?" will explain it in more detail.

Once you've dealt with the debt, try for another credit card. You're right in that numerous rejected applications will negatively affect your score, especially if you have no good activity being reported to offset it, so go easy. Start with a secured credit card, which requires cash collateral, then work your way up to an unsecured account.

I see a healthy financial future for you, Ella. You can do this.

See related: Credit card video: The basics of debt settlementDon't settle a debt for more than you can pay