Should I use my credit card to pay for my elective surgery?
Let’s say a knee replacement costs $48,000. With a HELOC you could borrow $40,000 at prime rate plus 0.25 percent (3.75%) for a total interest rate of 4 percent. In comparison, most credit cards charge an interest rate of 18-30 percent for purchases.
Yes, it’s possible to get lower rates than 18-30 percent by using a credit card that offers a promotional rate for a limited time. However, it’s difficult to predict when these offers will expire, how long they will last and how much you’ll be paying in the long run. After all, you never know when an illness or injury may strike or if your credit score could take a dip from factors outside of your control.
Let’s look at the numbers for a standard HELOC and a credit card to show how quickly interest charges can add up. It’s also important to note that credit cards have late payment fees and interest rates could increase over time or whenever you make a late payment.
Cards
Key points
Every card has its Advantages and Disadvantages
Advantages
Disadvantages
Frequently Asked Questions
If you borrow $40,000 at 4 percent for a five year term, your monthly payments would be $1,152. Meanwhile, if you use a credit card with a promotional rate of 0 percent for 12 months and then 18.99 percent after that, here’s what your monthly payments would look like:
0% for 12 months: $0
18.99% after 12 months: $402 (18.99% x $40,000)
Total monthly payment: $402 + $1,152 = $1,554.
If you’re only able to make the minimum monthly payments, it will take you 30 years and cost $716 more in interest than with a HELOC. That’s a big difference for something that’s supposed to help speed your recovery.
If you’re not sure how much money you’ll need to pay for your equipment, ask your physician or hospital if they offer payment plans. In addition to having lower interest rates, these programs often allow you to be billed in installments instead of paying all at once. Some hospitals and physicians may also be willing to work with you on cost-sharing options such as providing cheaper financing opportunities or agreeing not to charge interest on your loan if the overall amount is reasonable.