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Medical bills can take a big toll on credit

Brady Porche

Paying a big medical bill can have long-term financial side effects, according to a new study by Chase.

In a study of 250,000 Chase checking account holders, the bank found that the average family’s revolving credit card debt was 9 percent higher one year after making a major medical payment of roughly $2,000. Medical payments were also associated with lower income and less liquid assets one year after the fact.

Chase found that families accumulated $900 more in liquid assets on average prior to making large medical payments.

Additionally, these payments were likely to be made in months of elevated income — specifically during tax season. This suggests many people use their federal refunds and sell valuable items to pay doctor bills while relying on credit cards to make ends meet.

Researchers at the bank said customers may be putting off paying their medical bills until they can afford them or delaying treatment altogether. Moreover, the reliance on liquid assets to cover atypical expenses points to a lack of emergency savings.

Squirreling away money on a regular basis is like eating a nutritious diet and exercising. It’s a good habit that can keep you financially stable, even if you only save a little at a time. A medical emergency can happen at any time, even if you’re in excellent shape and rarely get sick. But if you’ve spent several months or even years building up a rainy-day fund, your out-of-pocket medical costs will be much more manageable when the unexpected occurs.

Here are a few creative ways to build an emergency fund that can help offset an unexpected trip to the doctor or dentist:

Cut the fat out of your budget.
Take a close look at your monthly expenses and eliminate anything you can live without. That could mean new clothes or extra shoes, food items you often find yourself throwing out or anything that looks enticing just because it’s on sale.

You can also try reducing the costs of things you want to keep in your budget. Shop around for a lower car insurance premium and consider switching from cable to a streaming TV subscription. If you frequently dine out, check which restaurants in your area offer the best happy hour prices and eat dinner a little earlier. Brew coffee at home in the mornings instead of going to Starbucks.

Turn your “impulses” into savings.
The next time you find yourself tempted to buy something you don’t absolutely need, move the purchase amount of the item into a savings account instead of buying it. If you end up having to pull the money back out of savings to pay a bill or other expense, at least you’ll know you couldn’t afford the item in the first place.

Establish a per-paycheck saving plan.
If your budget is mostly free of wasteful spending and impulse purchases, you could simply establish a per-paycheck saving amount and stick to it. Saving just $100 every two weeks amounts to $2,600 per year — more than enough to cover the average major medical payment in Chase’s study. If you get a raise, adjust your regular savings amount by the same percentage as your pay increase. Take a chunk out of any bonus or tax refund you receive and put it into savings instead of spending all of it.

Saving money consistently is a good prescription for financial health. It can also minimize stress — something your body will thank you for.

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