Are medical credit cards worth it?

Curtis Arnold
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Curtis Arnold
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So called medical credit cards – also known as healthcare credit cards – are a relatively new type of credit card that are actively marketed by the health and wellness industry. The cards claim to offer flexible financing options so you can pay for medical related expenses that you want or need over time.

Medical cards have surged in popularity in the past several years. CareCredit, the largest player in the space, boasts that their card is accepted at more than 260,000 enrolled provider and health-focused retail locations and is used by 11 million plus cardholders.

While these cards do offer several advantages, there are certainly potential disadvantages. It is my hope that this primer will help you make a wise decision regarding whether these cards are a good fit for you. It’s always my goal to help you profit from cards and to empower you while doing so!

What are medical credit cards?

Medical credit cards have the look and feel of a regular credit card, however, they are different from standard cards in a few significant ways.

Perhaps most notably, you can only use these cards for health and wellness related expenses. Specifically, you can only pay for out-of-pocket expenses at doctors, dentists, specialists, optometrists, etc.

They are an easy way for a medical provider to offer financing, including 0% financing, through a third party (such as CareCredit) without having to offer in-house financing. According to Public Interest Research Group, medical cards are being offered to patients in health care provider offices by office staff as a simple and convenient way to pay.

The 0% financing that is associated with most offers is similar to 0% intro rate credit cards that offer introductory APR on purchases, with a few notable exceptions (covered below). These 0% offers are often marketed as an easy, flexible, promotional financing option that allows you to pay off your purchases interest-free over a set period of time.

BONUS TIP!

Medical cards can also sometimes be used for veterinary expenses. Many pet owners don’t have pet insurance, so this may be a good option if you have to make an unexpected after-hours trip with your favorite feline to an emergency clinic (such clinics are known to be quite pricey).

Is the 0% financing offered by medical credit cards a good offer?

As alluded to above, there are a similarities but differences between 0% APR credit cards and medical cards.

The two main differences are that medical cards are often are associated with deferred interest and retroactive interest:

  1. Deferred interest means that interest is deferred or not charged for a limited time frame, typically six to 24 months.
  2. Retroactive interest is charged from the beginning of the intro period (essentially backdated) if you don’t pay your balance in full by the end of the intro period.

According to Gerri Detweiler, credit and small business expert and coauthor of “Finance Your Own Business: Get on the Financing Fast Track,” you should be very disciplined when taking advantage of a 0% rate. If you miss a payment or don’t pay your balance in full, she notes that “interest will be charged retroactively (hence the name) on the entire balance and it’s not cheap!”

John Ulzheimer, president of The Ulzheimer Group and founder of CreditExpertWitness.com,  adds that one of the main benefits of medical cards is 0% (interest-free) short-term financing. You can end up not paying any interest and potentially save hundreds of dollars in interest charges in the process if you play your cards right (pun intended) and pay off your balance in full before the intro rate expires.

On the flip side, Ulzheimer explains that interest can get very expensive if you carry a balance following the intro period. This is because the ongoing or normal purchase APR can be really high-the CareCredit card, for example, has a 29.9% ongoing APR at the time of this writing.  

Detweiler suggests the following tips to avoid getting dinged with retroactive interest:

  • If you decide a medical card is your best option, make sure you understand the costs and the payment schedule. CareCredit, for example, currently offers six, 12, 18 or 24 months interest-free.
  • Try to set up automatic payments to pay off the balance before the intro time frame ends.
  • Try to avoid the trap of making minimum payments- pay as much above the minimum as your budget will allow.

BONUS TIP!

While most medical cards are associated with high regular purchase APRs, there is at least one exception. The Wells Fargo Health Advantage Card features a very attractive 12.99% APR for purchases (at the time of this writing). This card also offers special financing promotions to select customers.

What are the best alternatives to medical credit cards?

While medical cards might be a good choice in some cases, it’s also a good idea to consider other consumer-friendly options before you make any final decisions. Many consumers aren’t aware of other options and therefore can make an uninformed decision that can be costly.

quote

Whether medical credit cards make the best financial sense or not, sometimes it’s all people have – or at least it’s all they think they have. I imagine a lot of people apply for these in moments of desperation. It’s important for people to understand that they have other options.

Jennifer Doss, CardRatings Executive Editor

Three of the best alternatives to medical credit cards are:

  1. A standard 0% APR credit card that offers a 0% rate on purchases for up to 21 months.
  2. A 0% balance transfer credit card can also be a good choice if you apply for a medical card and then realize you won’t be able to pay off your balance in full by the time the promo rate expires. Detweiler points out that “you can use the transfer card to pay off the medical card and extend the time you have to pay off your balance” in so doing.
  3. A standard low ongoing purchase APR card may be a good option if you aren’t eligible for a 0% intro offer or if the card details don’t appeal to you.

Ulzheimer suggests comparison shopping before making any final decisions.If you are going to carry a balance then choosing the option with the lowest APR is the best option. That might be a new card or that may be a card that is already in your wallet.” A final related benefit is that you might even earn cash rewards on your purchases.

Detweiler advises that you should think ahead of time about what you would do if faced with an expensive medical or veterinary bill. One related tip is to see if you have an existing card you rarely use:

  • Make sure you know where this card is and that the account is still open/active.
  • Check the interest rate and find out if there are any promotional offers, such as a balance transfer.

Ulzheimer also offers a more conservative alternative that also makes a lot of financial sense:

“My advice for consumers who choose to finance elective medical procedures, such as those that are commonly paid for with medical cards, would be to consider waiting until you’ve saved enough money to just pay for the procedure in a lump sum. That will ensure the cheapest possible method of payment.”

Another great suggestion is to ask your healthcare provider about payment plans. Detweiler suggests that you “ask if they offer a short-term payment plan to give you time to think through alternatives.”

A final option involves wise money management. Jessica Cultra, a blogger and financial literacy advocate, believes that medical cards are an area of opportunity for financial literacy efforts. The goal here is to help equip consumers with money management skills, particularly during a financial crisis. Such efforts can help consumers avoid medical debt, increase their credit scores and build wealth in the process- and thus avoid the need for medical cards in the first place.

BONUS TIP!

Before paying with a regular card, Ulzheimer recommends that you make sure your provider doesn’t charge a merchant fee for using plastic, which can add another possible 2-4% to your bill. Similarly, ask if your provider offers cash pay discounts.

Final thoughts

In closing, medical credit cards can be a blessing or a curse depending on how they are utilized. Detweiler sums it up best by explaining that they can be a lifesaver for you or your pets in essential situations, but they can also be a very expensive way to pay for care if not used in a savvy manner.

She further notes that when you (or your pet) are in distress is not the best time to think about your financing options. A bit of financial planning can go a long way in helping you make an objective decision as to whether these cards are your best choice.

Cultra opines that medical credit “is a gray area in the personal finance space and not clear cut. On one hand you have a readily available option for consumers that are in a healthcare conundrum and on the other hand you have a large marketing presence saturating doctor’s offices.”

Sadly, there are no financial literacy efforts (by healthcare providers or creditors) about the pros and cons of these offers. The bigger beef Cultra has is that you generally trust your healthcare providers, so the fact that your doctor helps market these cards can be somewhat problematic. It’s probably best to let the doctors stick to what they’re best at…

I sincerely hope these tips are helpful to you and I would love to hear your thoughts about medical cards and related options. Who knows, I may include a tip from you in a future article!

author
Curtis Arnold
CardRatings Founder

Curtis founded Cardratings.com in 1998 and, in so doing, helped pioneer the concept of rating credit cards. He has been a nationally recognized expert in consumer credit for well over 20 years. He is the author of “How You Can Profit from Credit Cards: Using...Read more

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