A new report shows that consumers are charging less to their credit cards while also paying down the balances on those cards. (more…)

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In what is turning out to be the worst recession since the Great Depression, many Americans are struggling to pay their bills as companies continue to shed jobs and the economy continues to contract.

In this recession, costly expenses like medical bills are taking a backseat to daily expenses like water, electricity, food, car, and mortgage payments. Now, as with credit cards, consumers are struggling to keep up with their medical bills and increasingly letting more and more of their bills go unpaid.

The Commonwealth Fund, a healthcare research foundation, reports that in 2007, 41 percent of adults were struggling to pay their healthcare bills, up from 34 percent in 2005 (“When Medical Bills Outpace Your Means, Seize Control Swiftly,” The New York Times, April 25, 2009). And it’s not just the uninsured who have fallen behind on their payments, nearly two-thirds of people with medical debt actually have health insurance.

Experts say, however, that there are ways to manage your medical debt even if you aren’t capable of paying it off right away.

1. Communicate with your creditor.

If you know you’re going to be late on one or more of your medical bills, let your creditors know. Just talking with them won’t obligate you to make a payment, but if your creditor is aware that you’re trying to stay on top of your debt you may be able to avoid collections, at least temporarily, and protect your credit.

2. Review your bills.

Keep a running tab of your doctor visits and medical procedures to accurately review your bills when they come in. Errors in medical billing can occur often, so if you find a discrepancy call your provider for an explanation. And remember that it can never hurt to resubmit bills to your insurer if you’ve been denied coverage.

3. Bring in extra help.

Try negotiating with your provider for a discount or for some leeway on repayment. If your creditor still won’t work with you, consider hiring a billing specialist who may be able to help you find errors in your medical bills and better understand the often-complex language of medical billing.

4. Avoid the plastic.

Don’t react with panic when you receive a late-payment notice by transferring your medical bill debt onto your credit card. Chances are if you can’t pay your medical bill now, you’re not going to be able to pay the credit card bill when it comes in later. And medical bill charges that stay on your credit card will immediately start earning interest, not to mention that charging a large sum to your credit card could negatively affect your credit score, if you’re carrying too high a debt load.

5. Know your rights.

Just because a medical bill goes to collections, doesn’t mean creditors have free rein to hassle you into paying; they have guidelines and rules to abide by — they can only call between 8 a.m. and 9 p.m. and they can’t scare you into paying the debt. Ask for the caller’s name and request that they send you the name of the creditor and the amount you owe in writing. Visit the Privacy Rights Clearinghouse for a guide to debt collection.

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The credit crisis has taken its toll on many consumers’ immediate ability to borrow and pay down their debt as, over the last year, banks and other lending institutions have slashed credit limits and hiked interest rates in an effort to protect themselves from rising consumer defaults. But economists predict that this vastly altered consumer credit market won’t be a fleeting change.

“In the previous two decades, our credit scores have become more important over time,” said personal finances expert Liz Pulliam Weston (“Rules Have Changed for Consumer Credit,” Chicago Tribune, April 19, 2009). “Then in the past year, it’s suddenly become critical.”

She warns that if consumers don’t pay attention to these recent credit developments they could make some costly mistakes that could negatively affect their personal finances.

1. Credit Scores

The overhauled credit markets have polarized the world of credit scores: now there’s good credit and bad credit and relatively little in between. Consumers with good credit have seen little to no effect on their financial lives, while consumers with less than stellar credit are increasingly facing higher interest rates, more stringent loan terms, and disqualification from all types of loans — home, auto, student, etc.

The Recommendation: Don’t take on any more debt and start paying off your existing debt.

2. Credit Benchmarks

The qualifications for good credit and bad credit have also shifted. About a year ago a 700 to a 720 FICO credit score — the most widely used credit score formula — was considered acceptable for most consumer loans, and a 620 FICO score was considered subprime and subject to less favorable terms. Today, consumers need a 740 to a 760 credit score to get the most consumer-friendly loan and credit card terms, and consumers with a 660 to 680 score are considered subprime.

The Recommendation: Pull your credit report to see if there are any unforeseen blips or mistakes that could have dinged your score. You can get a free copy of your credit report from each of the major reporting bureaus once a year at annualcreditreport.com. For a free estimate of your credit score, you can use some of the new credit simulators at Bankrate.com, Quizzle.com, or Credit.com to get an idea of where you stand, but if you’re considering taking out any new loan you may want to use a site like MyFICO.com to pull your actual credit score and see where you really fall on the new scale.

3. Credit Limits

Consumers with lower credit scores are having their credit limits slashed by credit card companies, which can severely throw off your credit utilization ratio — the ratio of your available credit to how much you’ve borrowed — and consequently, lower your credit score.

The Recommendation: Consumers with good credit scores, 750 and above, can try negotiating with their creditors to reinstate lines of credit, if need be. Creditors are more willing to accommodate consumers with good credit since they are harder to come by in this recession.

4. Card Cancellations

In addition to lowering limits, credit card companies are shutting down lines of credit due to low use, which may be one of the few credit changes to hurt consumers with good credit.

The Recommendation: Make sure to occasionally use the cards that you keep in the “back of your wallet” — charging some purchases at least a few times a year — and promptly pay off the balances on these cards in full.

5. FICO Score Formula Changes

One of the three major credit reporting bureaus, TransUnion, has begun using Fair Isaac’s new FICO score formula, which places more emphasis on your credit utilization and ignores overdue balances of less than $100. It’s unknown when or if the other credit bureaus, Equifax and Experian, will follow suit.

The Recommendation: Keep balances to below 30 percent of your available credit, and if possible, try to bring your credit utilization down to 10 percent to get better interest rates and more favorable borrowing terms on consumer loans.

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Consumers’ access to credit could get even tighter as creditors continue to slash consumer credit lines and move to close inactive credit accounts – defensive measures meant to protect banks against the surging number of consumer defaults, reports The Wall Street Journal (“Credit Card Companies Slash Credit Limits,” Jan. 5, 2009). (more…)

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Credit card companies will soon have to abide by new federal regulations meant to protect consumers from interest-rate increases and other unfair credit card practices, reports The Associated Press (“Regulators Adopt New Credit Card Rules,” Dec. 19, 2008). (more…)

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With less consumer credit available, as many credit card issuers reduce spending limits and raise fees, consumers are increasingly turning to debit cards or cash at the checkout counter, reports The Associated Press (“More Customers Resume Using Old-Fashioned Cash” Nov. 23, 2008). (more…)

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Citigroup Inc. lost $1.44 billion during the third quarter from credit card debt it packaged and sold as bonds, the financial services giant reported in a recent regulatory filing (more…)

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A CreditCards.com poll has found that eight out of 10 Americans are reluctant to talk openly about their level of credit card debt with someone they just met (“Poll: Credit Card Debt the New Taboo Topic,” July 8, 2008). More surveyed adults are uncomfortable with the idea of discussing their credit card debt than any other topic, including their love life, salary, religious views, (more…)

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A new report, issued by the research firm Innovest Strategic Value Advisors, predicts that as the fallout from the credit crunch continues, consumers will be increasingly likely to default on their credit cards, forcing banks to write off nearly $100 billion in credit card debt over the next year (more…)

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A recent monthly performance report issued by discount mega-retailer Target is showing that, in the ongoing economic downturn, more of the company’s customers have stopped making the monthly payments on their Target-branded credit cards. Not just that, reports the Minneapolis Star Tribune, but those customers who are making payments are paying smaller amounts (more…)

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