Ask Paula: How to Pay Off a $8,000 Medical Bill Without Going Broke

0:00Joe, have you ever gotten a huge medical bill in the mail? Very luckily, I have not. Oh, well, we're going to answer some questions. I have. I have many, unfortunately many. And we're going to answer some questions today from a caller who is also dealing with that. And, well, I'm not going to spoil it. So let's get to it. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. every choice that you make is a trade-off against something else. And that applies to any limited resource that you need to manage, whether it's your money, your time, your focus, your energy.

0:38So what matters most and how do you make decisions accordingly? That's what this show is here to explore. My name is Paula Pamp. I'm the host of the podcast. Every other week, I answer questions that come from you, the community. And this week, as always, my buddy, the former financial planner, Joe Salcihai, joins me to answer these questions. What's up, Joe? I am here. I've got coffee. I'm ready. And I can't wait to help some people out. Beautiful. I got a cup of coffee too. I've got, even on the desk, I've got some macadamia milk. I've got some - Do you put that in the coffee or do you use this as a chaser?

1:20Oh, I've got collagen peptides. I put that in the coffee as well. Because who doesn't like a good collagen peptide once in a while? Exactly. A peptide singular. All right. Our first question comes from Sarah. Hi, Paula and Joe. My name is Sarah. A quick thank you to both of you for all the content that you provide. You've really helped me and my family get our finances back on track just by us listening to your podcast. So thank you for that. I'm calling today with a question about medical bills. Earlier this year, I was hospitalized and have an outstanding balance to our hospital for about$8 ,000 because of my high deductible health plan.

2:02I'm wondering about how I should pay that bill. I have the option through the hospital to make a payment plan that is interest free. So I could make a small payment every month and that could go on for two or three years of those small payments. or I could pay that bill out of my savings. And while I don't love that idea, I could do it. So I'm just wondering what your thought is on that. I was wondering if it would be better to make those small interest-free payments and then to keep that larger chunk of money in my money market savings account where it is now, where it's at least earning a little over 4%, or is it psychologically better to just make that payment and be done with it?

2:48So thanks so much for your feedback. Sarah, thank you for the question. I have been in exactly the same position many, many times, and I am a huge fan of taking the interest-free loan. You have a zero interest, essentially, loan from your medical provider, so why not make the smallest possible payment, stretch it out for as long as you possibly can, And then keep that money in a high yield savings account. Keep that money in a money market account. And you're functionally arbitraging the difference between 0 % versus whatever return you're getting on the money that's in your savings account, your high yield savings account.

3:27So I'm a huge fan of that. The only exception, I'm saying this not for you, Sarah, but for anybody else who's listening, there are some people, their psychology is such that having any type of debt would cause them to just have anxiety attacks, go into a cold panic, their stomach would clench, it would keep them up at night. So for the sake of everyone listening, if that is your inner psychology, then of course, pay it off so that you can not have those anxiety attacks. But for you, Sarah, just based on the fact that you're even considering this, based on the fact that you asked that question, my assumption is that that is not your psychological makeup.

4:05And so I would say if you have the stomach, the psychology to be able to do it, hold on to that debt and make the smallest payment possible. Good news, too, there, Paula, is that the credit reporting agencies have changed the rules around medical debt as well. So this debt won't affect your FICO score in the same way that it might have a few years ago, which is also good news for a lot of people. And she's going to have a history of on-time payments. Right. But sometimes people worry about, hey, is this going to make my utilization ire? It will have some impact, but not like it used to. So you won't have that hanging over your head like you might have three or four or five years ago.

4:48You know, the interesting thing about this, Paula, is that we see all these stats talking about the psychological makeup of some people, that people are happier when they have no debt, just in general. And whenever somebody asks this question, I always want to know, what is this money competing against, right? What are the other goals that this money would be used for if I don't use it to pay off my debt? We obviously don't know that, but I think that's important information because maybe there might be halfway where she pays off, she pays part of the debt to get rid of the debt. Maybe there's something else it's competing with.

5:35I don't like that at all. But if the money's just sitting in cash, if the money's sitting in cash, I really want to know what the other goals are. And I'm not talking about for Sarah. I totally agree with you for Sarah because I think Sarah's asking the question and she said point blank, I don't like putting this money toward the debt. Well, then go with the 0 % loan. But here's what I see on the other side. When you talk about people that don't like having debt hang over them, so then they pay it all toward this debt that could have been interest-free, and there was some goal that's not interest-free on the other side that we should have probably put that money toward because that money needed to earn a return to get the goal, well, then we're very suboptimal.

6:21That's why I always want to know what the other goals are that this money might be used for. Well, I mean, even if let's just say that her goal is retirement, because ultimately everybody's goal eventually is retirement. Whether or not you want early retirement, everyone wants to retire by the time they're 90. Right. So even if we'll say that's her only goal, that requires earning money at a rate that's greater than zero percent. Agreed. So no matter what, arbitraging that money by keeping the 0 % loan and keeping her money in a high-yield savings account, collecting that arbitrage is going to be useful.

7:03I don't think it always is. So I do think it's different for her and for other people and knowing what the other goals are that we're competing against for that money. And so let's take a look at that. I mean, let's dive into that. Let's say that she is close to retirement. she saved nearly enough for retirement she's even can she she could even probably coast in the happiest retirees don't have any debt she doesn't like having any debt but this loan is eight thousand dollars and eight thousand dollars is all that she has i would in that case say let's take your biggest emergency the thing that freaks people out let's double that number let's leave that number in cash and then let's take the rest to pay off this medical debt right because if you're going to be happy, happier in retirement, since we're using retirement as the example, without having the debt, I still wouldn't take all of it and pay off the loan, but I would take a chunk of it so that you knew that you're three quarters of the way there.

8:04I think as long for, again, with the exception of that edge case of people who really panic and really get into cold sweats about it's not it isn't an edge case it's most people are happier in retirement when they don't have any debt well that that is case yes but that is true but but but in sarah's case as long as she has eight thousand dollars in her savings account she functionally doesn't have debt she has technically debt on paper but she has the money to pay off her debt so unless unless she is that edge case of person who gets into a cold sweat about the fact that this$8 ,000 balance is on ledger A rather than ledger B.

8:52It's still not an edge case. It is absolutely an edge case. No, the number of people that I, when I was a financial planner, the number of people, and I would sit in your seat, Paula, and I'd say, listen, we got the money sitting right. I don't care. I want to pay it off now. Are you kidding me? This is a 0 % loan. It is totally not an edge case. It is not. There are a ton of people walking around that go, you know what, if I have the money paid off, why the hell wouldn't I pay it off? Let's pay it off. Let's get it off the books. Psychically, I need to get this out of my brain. It does take up psychic power in my brain to have this debt quote hanging over my head, even though I can tell them and you can tell them all day long.

9:30You go, no, it ain't hanging over your head. Listen, we can pay this off whenever we want. Fine. Edge case or not. If you're the type of person, which Sarah, Sarah is not the fact that she's calling in to ask this question. She's not that person. I think we agreed on that. We agreed on that a long time ago. Yeah. So, so I'd say, uh, unless you are that type of person who would get into a cold sweat, who would get the anxiety attacks, if you're that type of person, then, then pay it off. So you don't get the anxiety attacks. Otherwise, let me tell you what would help with the people that are the people that break into a cold sweat yeah this this very much helps you know how i meet them halfway paula now i tell them to hook up an automatic payment so they don't have to think about it anymore and i don't know why that helps but that totally helps and maybe it's the fact that i have this i don't want another payment every month i don't want to think about you know what don't think about the payment let's not think about the you got the money sitting over here it's not being used for anything else let's hook up an automatic monthly payment so it automatically goes into the account it's supposed to go into.

10:36I don't know why it helps. I can't explain it. I think the reason why is then it, then it becomes ostrich philosophy out of sight, out of mind, right? Everything, the system is humming along in the background. And so it never reaches the level of your consciousness. Yeah. Yeah. Yeah. So, so I could meet people halfway there. Let's at the very least keep earning almost 5%. If you've got a good high yield savings account, let's keep it earning 5 % while it's getting zero and just have it. Okay. Yeah. I can do that. All right. Well, Well, Sarah, you've got your answer. And I hope that you are the type of person psychologically who can take advantage of the arbitrage because that's a decent chunk of money over time.

11:16Thank you so much for calling and asking that question. Hey, Joe, does your phone number ever get inundated with spam calls? Constantly. What's great is that my provider puts a little tag that says potential spam. Ah, yeah. Which I love. Yeah, a lot of them do. Well, we are about to answer a question from a caller who is not a spam caller. Let's hear it. Hi, Paula. I've got kind of a miscellaneous question that's not really financial. It's more so related to real estate investing. Over the past three years, I've bought a couple of out-of-state single-family homes as investment properties as long-term rentals.

11:56These properties were all purchased in my own name, so no LLC or anything like that. and they're all managed by a property management company. My question is, I'm getting absolutely inundated with spam calls from quote unquote local investors asking if I'm interested in selling these properties. I'm not interested. I tell them so and then I block that number. However, I'm continuing to get similar spam calls at least three or four every day. I now have over 400 of these numbers blocked in my phone, but new numbers keep calling me every day with the same solicitation request. I know that you've got a number of out-of-state rentals.

12:32I'm curious what you do to minimize spam calls from local investors trying to buy your properties. Any advice? Thanks. Paul, I'm laughing about Brian's question because I got one of these, Brian, yesterday. Yesterday. And you know what's funny? It's a property I haven't owned in three years. Oh, man. Oh, man. And you know what? This applies not just to property owners, but also to business owners of all stripes. So absolutely. The moment you own assets, you start getting spammed. I think this has to do, Paula, with the public record of the property. Yeah, exactly. Property is public record. So it's easy to find a person.

13:17But business registrations, domain names. If you own domain names, you start getting spammed. I can't tell you how many spam calls I have trying to buy various URLs from me. So yeah, this happens not just to real estate investors, although I think real estate investors get it very, very bad, but it happens to all kinds of business owners and asset owners generally. I invested in, when I buy domains, I've invested in, and I buy them through a company that offers for a little extra fee, a shield so that my personal data doesn't show up. like it shows up as through them, mysterious owners through them.

13:55Which makes me ask you this question, Paula. So as a real estate person, does it make sense as you accumulate properties then to just invest in another phone number? It seems like a very low cost to have this quote business phone number where the spam goes. Well, so a couple of things. Number one, you don't actually even have to invest in that. Google Voice gives you a phone number for free. Well, there you go. So I do a couple of things. Number one, use Google Voice to get a free secondary phone number and use that as your the phone number that you basically you'll have the phone number that you give to the general public, such as the phone number that you use for real estate records.

14:35And then you'll have your own private phone number that is just for family and friends and colleagues. So that's one way that I do it. And just for everybody listening, I just found out why I can never get a hold of Paula. She gave me that phone number. I'm on to you now. I do the same thing with email addresses. The second thing that I do, there is a setting in iPhone in which any call from an unknown number automatically goes to voicemail. So rather than your phone ringing with an unknown number, it will just auto get sent to voicemail. And then you can, of course, weed through your voicemails.

15:14And if there are numbers that you recognize, maybe your dentist called you and that isn't saved in your phone, you know, you just then save that number. Right. So. Siphoning off calls from unknown numbers automatically. That's another thing that I do. And then finally, you know, there are occasions where I have to turn that feature off. So, for example, when I was in journalism school, I was placing calls to a bunch of sources in order to do reporting for news articles that I was writing. right? So I knew that I needed to get a bunch of calls from unknown numbers. So there were two things that I did at that time.

15:49Initially, what I did was I screened my calls such that calls with area codes in the cities in which I own properties, those calls I never picked up because oftentimes spammers will call from the same area code as the property, as where the property is located under the assumption that you're more likely to pick up those calls. And so what I do is if I see a call from an Atlanta area code, an Indianapolis area code, or a Las Vegas area code, I do not pick it up. I send it to voicemail. By contrast, if I see a call from an unknown number with a New York area code, I'm more likely to pick that up.

16:30So that was one thing that I did. And then eventually over time, I did actually just get a second SIM card and a second phone number entirely. And that was specific to being, when I was in journalism school, that was specific to being in a position in which I needed to be able to pick up calls from unknown numbers. I don't do that anymore. I have since canceled the SIM card because I no longer have the need to pick up unknown numbers. So those are all the ways that I try to screen spam. Well, and it's important. I mean, you know, the great thing for Brian is as he gets more successful and adds properties, this is going to be a problem that manipulates.

17:11And it sounds like he's already successful if he's getting these calls frequently right now. So yeah, it's only going to get worse. Yeah. Welcome to the club. This is the price of success. So congratulations, Brian, on getting frequently spammed. Way to go. Brian can tell people now, I'm so popular. You know how popular I am? I get five spam calls a day.

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21:35Our next call comes from Jenny. Hi, Paula. I am 36 years old and I am an independent consultant, meaning that I have multiple different clients from time to time. I currently have one client who wants to pay with a W-2 and they are my only and main client for this year. I'm wondering about what I can do for my retirement accounts. Obviously, because they pay me with a W-2, I can't take advantage of a SEP, self-employed 401k. However, the company itself doesn't have its own 401k plan. Am I just going to miss out on this 401k opportunity this year of putting money in with tax benefits for retirement?

22:54Or is there something else I can do? I've already maxed out my IRA for the year. I'm looking to see how else I might be able to save for retirement without just opening a regular investment account. Thanks for any insight. Jenny, thank you for the question. So if you are a W-2 employee and your employer does not offer any type of retirement plan, your best bet is a traditional IRA or a Roth IRA. But Jenny, you already have that. As you know, there's a glaring contribution limit, which is $6 ,500. That applies to you at your age. You're 36 years old. Once you are over 50, there is a catch-up contribution.

23:47It's an extra thousand that you can put in, but it's a very low contribution limit. So that's the first thing that you can do is fully fund an IRA. But the drawback is once you've hit that$6 ,500 limit, you're tapped out for the year. Beyond that, you mentioned that you are an independent contractor and your main client pays you through a W-2. I assume that means you have other clients that pay you 1099 income. The good news there is that the money that you make from those other clients that pay you 1099 income, you can treat that money as any type of self-employed money. And so you can then, with the income from the clients who pay you as a 1099 worker, you can access all of the options that are available to self-employed individuals, which are the three key ones are the solo 401k, the SEP IRA, and the simple IRA.

24:47Joe, you're the former financial advisor. Is that what you would say to a client? Yeah, but you know what I would say even before that, Paula? What's that? Why does that employer want you to be a W-2 person? like I really, I re especially if they don't have a 401k, they don't have benefits like some employers that, um, that are, you know, forward thinking and realize that treating your employees better matters. Maybe they've got health benefits. They got things they want to include you like, that is great. But why do they want you to be W2 if you don't want to be W2? Like if somebody, if somebody came to me and said, I work for other people, I just want you to 1099 me, I would say, oh, Lordy, thank you.

25:38Because it makes my job so much like the tax reporting on their end, all the stuff they got to fill out that's state specific is just so, it would make their job so much easier. Oh yeah. We had a W-2 employee from the state of Alabama once and the The state, oh my goodness. For years after he left, we were just being hounded for paperwork by the state of Alabama. Because no matter how many times we tried to tell them we don't have any employees from the state of Alabama, they were still like, we need quarterly taxes. And we're like, we don't have any employees there. And it was a nightmare. So yeah, the state reporting requirements when you have a W-2 employee is just a job unto itself.

26:25So I think there might be a conversation opportunity there to say, hey, you know what? I would much rather be 1099. But we don't know. Maybe she gets health benefits, right? Maybe the function of being a W-2 employee is that she gets health benefits from this particular client. If she does, yeah, then there's a reason. But just from the evidence we had from that call, she's like, for whatever reason, they may be W-2. If you don't want to be, then I might talk to them about how much in their favor. You know, when you enter into discussions like this or any negotiation, it's always best to argue from the other person's point of view.

27:06Right. So if you can make it a win for them to do the thing that you want, that's way better than going to them with something than talking about your side. Right, right. Yeah. Here's why it would be easier for you. It would be cheaper for you. It would be less reporting for you. It would be less onerous for you. Yeah. But if there is a reason, Paula, I think you nailed it. You can look at things like the Solo 401k is pretty cool as well as the SEP, the simple. Good stuff. The types of retirement accounts that are available to you, if you have access to an employer-sponsored plan, are far more restricted.

27:45But in your situation, given that you do not have access to any employer-sponsored plan, that completely opens up the window for all retirement accounts that are available to self-employed individuals. the key is that that can only be funded by the money that you make from your 1099 income. So you'll need to have both sources of income, your W-2 income and your 1099 income. If Jenny has the worst case scenario and she has to do what she alluded to, which is just open up a brokerage account and save money there because she's capped out. Right. I do have some good news for Jenny, which is while that is suboptimal, the degree to which it's suboptimal is a lot less for most people than I think that a lot of people in our community allude to.

28:39We really go a little overboard on some of the tech stuff because if you are an investor and not a trader, Jenny, if you're a trader, you're going to be churning taxes and you're going to be throwing off a lot of different things. But if you're in an exchange traded fund or a mutual fund that's based on an index, it will sometimes throw off usually a very, very, very small tax bill. And don't get me wrong, that's friction. And if you did have it inside of a IRA or a solo 401k or a SEP or simple, whatever it is, sure, that would go away. It's not as big as people think it is, Paula. If you're a buy and hold person, it's not a ton of friction.