What to Consider Before Applying for a Medical Credit Card

These cards can help you pay for the treatment of medical pain – but may cause financial pain.

Stethoscope on a credit card
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The story of Marsha Donahue's dental bill began in 1986. She was 36 years old, driving on a busy stretch of road in Scarborough, Maine, when she stopped to make a left turn into a business. "As I glanced in the mirror, I saw a car speeding toward the rear of my car," Donahue recalls. "It was an older man trying to beat out a couple of young men in a car to his right."

He didn't see Donahue, or her two-year-old son. With no time to get out of the way, Donahue gritted her teeth and braced for impact.

Both mother and son were fine, but their Saab hatchback was totaled, and Donahue's teeth were a casualty. For years after, Donahue had issues with them, and a dentist surmised it was probably due to that crash. An X-ray revealed hairline cracks in Donahue's back teeth, which allowed decay and rotting under her old fillings.

That's how she came to need thousands of dollars in dental work. In January 2007, Donahue used a CareCredit health care credit card to help cover treatments for periodontal disease, a root canal and two crowns, and she has owed money ever since.

Donahue, now 63 and living in Millinocket, Maine, isn't complaining. "There was no way I could have afforded this work if I hadn't had this card," she says, adding that because the card offered an interest-free payback period, "It was more than fair."

[Read: How to Negotiate Hospital Bills and Avoid Medical Bankruptcy.]

For some consumers, medical credit cards, which only health care professionals accept and must be used for medical expenses, are just what the doctor ordered. But there have been plenty of signs that they can also make patients financially sick. So if you're going to apply for one of these credit cards, offered by companies including CareCredit, a subsidiary of GE Capital Retail Bank, as well as Wells Fargo and Citibank, here's a quick consult.

Plenty of consumers get in over their heads with medical credit cards. These cards can be incredibly useful, and they're generally interest-free at first, for anywhere from three months to as long as 18.

The problems come after. "If the total balance is not paid off within the time frame, all the past interest is added to the balance and now becomes a liability to the cardholder," says Passard Dean, associate professor of accounting at Saint Leo University in Saint Leo, Fla.

"The interest rates can be very high – 27 percent or more isn't unusual – and since medical care is so expensive, there's a good chance the consumer will carry a balance. The danger is that the balance will become very high in no time at all because of the interest expense. At that point, the individual is dealing with credit card debt as well as health issues," says Beverly Harzog, author of the book, "Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made."

Donahue's annual percentage rate is instructive. In January 2007, she paid zero percent interest with the card, and after a few visits, her balance was $466. By November 2007, when her six-month interest-free period ran out, her balance was $737, and the APR went up to 22.99 percent.

Donahue was never quite able to pay off the card in time because she funneled all of her extra money into her then-new business, North Light Gallery, which specializes in selling works of Maine artists.

Years later, after a deferment and at least one late fee, her APR now stands at 29.99 percent. Her last bill was $3,929.48. A little over $500 of that went toward veterinary care for her dog, Diesel.

Donahue, of course, is a relatively satisfied customer, albeit one who has sworn off credit cards and advises, "Only spend the money you have, even if it hurts." But not every customer comes away satisfied. Numerous complaints against medical credit card companies have inspired some state attorney generals, including those in New York, Ohio and Minnesota, to investigate the cards' practices. In fact, in mid-November, New York Attorney General Eric T. Schneiderman issued a statement warning consumers: "The explosion of medical credit card debt is a major concern for many Americans, particularly vulnerable seniors and low- to middle-income households. For patients, the financial consequences can be dire. The problem is made even worse by companies that encourage high-pressure sales tactics in our health care settings and companies that charge outlandishly high interest rates."