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Credit Card Debt and Medical Care

Credit Card Debt and Medical Care

May 01, 2024

I have a lovely client – funny, bright, beautiful.  She is self-employed, with her own housekeeping business. You can see she takes great thought in how she takes care of herself, from an extra side-job teaching dance, to noticing she always has one a pair of interesting earrings, not necessarily expensive, but instead creative and striking.  It’s obvious that she cares, presents herself well, and is working hard.

She is a single mom to two children.  She has provided a good home and personal guidance and support to her family.  She’s encouraging her son to travel for work opportunities.  She stays on top of her daughter’s schoolwork. 

Early in the year she came in to discuss putting money into her IRA.  I was going through my financial planning checklist, and right away we came to a stop. 

I asked, “credit card debt?” and I was surprised when she said yes.  She had, had to have significant dental work done and most of it wasn’t covered by dental insurance.  Teeth were pulled and the dental implants totaled nearly $10,000.  She said she couldn’t function without several of her lower teeth.  

The bottom line was $10,000 needed to be paid, and it went on her American Express.  She tried to work out something with the doctor’s office, but she said they weren’t willing to work out a realistic payment plan. 

She felt like she was doing well because she was making the minimum monthly payment on the card, but I told her this is the danger.  She had never had credit card debt before and thought the credit card would be a good option for her emergency.  I explained to her that credit card interest rates are high, and only making the minimum payment will not pay off the card.  I emailed her a calculator on my website to estimate how quickly credit card debt can be paid off. 

After she left, I felt how fortunate I am from having good healthcare to having an emergency fund.  That being said, about a week later, we received a $1,000 bill for a procedure my husband had done in November of last year.  Soon after $900 for an ongoing condition my daughter suffers.  A week later $2,150 for an outpatient procedure I had done, $1,000 in dental expenses for two kids, and then $2,000 in hospital expenses for my daughter.  Incredible...

I looked up my family maximum out of pocket costs are $13,300 per year or $6,600 per person.  We still have a lot of room unfortunately that could be consumed by a couple more unexpected medical events.   

It's made me rethink some of my recommendations.  In my opinion and experience, the new math for an emergency fund should include the maximum out of pocket on your insurance policy.  Depending on your income source whether it’s variable or very steady, you should keep three months (if very stable) to six months (more variable) of basic living expenses.   

An emergency fund should be invested in a secure financial account that is not subject to market vacillation.  At long last, money markets are paying enough to almost keep up with inflation.  If you need to hold enough to fund six months of expenses in an emergency fund, putting half into a three-month CD can be an option. 

It’s hard to predict financial stressors.  In our society, we talk so much about saving for retirement, but for many Americans, it’s most important to protect themselves from the costs of medical emergencies and related costs like missing work or needing to pay for outside services. 

Give me a call today, and we can figure out how much you should keep in your emergency fund.