Jul 19, 2026
Almost half of Americans are holding onto medical debt, according to a 2022 poll from KFF.
And many of them report struggling to keep up with those bills, letting them slip past due or into collections. Others still said they’d gone to family and friends or even used credit cards to foot the bill for medical expenses. And having insurance is no protection from medical expenses, when you factor in premiums, deductibles, co-pays and uncovered expenses.
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Imagine Sam and Alison, who are struggling to pay their bills after a sudden illness in their family left them with $50,000 in medical bills that they put on credit cards. Now, five years later, they feel like they’ve barely made a dent in their debt, and they’re struggling to make minimum payments.
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Even if they manage to keep up with the $2,000 monthly minimum payments, it will take them more than 20 years to pay down their debt. And they will end up paying nearly $40,000 in interest.
Since only one of them is able to work, they’re starting to wonder if they’ll ever manage to dig themselves out of this hole. At this point, they’re not sure whether they should try and get a debt management plan, a debt settlement or file for bankruptcy. Here’s what they need to consider.
Options for managing debt
Debt settlement programs, which are offered by for-profit companies, can be risky, the FTC warns.
These companies will negotiate on your behalf with your creditors, offering a lump sum that you will agree to pay, which is less than your debt. “Meanwhile, you have to set aside a specific amount of money every month in a designated account until you have enough savings to pay off the amount in your settlement agreement,” the FTC says.
The programs typically “encourage you to stop making any monthly payments to your creditors.”
But if Sam and Alison chose this option and stopped making payments, and then the debt settlement company failed to reach a settlement agreement with their creditors, they’d be in an even worse position than they had been — they’d owe even more in late fees and interest.
And with debt settlement programs, you still have to be able to make all the payments on time to pay off your debt.
The FTC warns consumers should be incredibly careful when exploring this option: “Some debt settlement companies are dishonest and make promises they can’t keep, charge you a lot of money, and then do little or nothing to help you.”
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What about credit counseling?
Another option to manage debt is working with a credit counselor to make a debt management plan, which is different from a debt settlement program. You can search for credit counselors at credit unions, universities, U.S. Cooperative Extension Service branches, and from military personal financial managers.
But again, you need to be careful with this option. Be wary of credit counselors who don’t offer any free information, the FTC warns. You’ll also want to avoid those who’ll charge you a lot of money before they do anything, say they can fix all your problems, or don’t take the time to carefully review your finances. You can also check them out with your state attorney general or local consumer protection agency.
A credit counselor can make you a debt management plan, typically a payment schedule for you and your creditors, possibly with lower interest rates or waived fees, the FTC says. Then, you deposit money with the credit counseling organization every month, and your counselor pays your creditors according to the plan.
However, the FTC cautions against working with a credit counselor who’ll tell you a debt management plan is your only option.
For some individuals, the best course of action when it comes to unmanageable debt might be bankruptcy. But because of its long-term impact on your credit, bankruptcy is often viewed as a last resort. If you’re working with a reputable credit counselor, they can help you decide whether filing for bankruptcy makes sense.
For Sam and Alison, or anyone else struggling to make their minimum payment, bankruptcy may be the right choice if: the debt you owe is too overwhelming, you wouldn’t be able to make repayments while managing to pay for basic necessities, it would take many years to pay down your debt (some experts say more than 5 years), or the impact your debt is having on your relationships is taking a major toll.
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If you do file for bankruptcy, you’ll have to pay filing fees, which can be several hundred dollars, plus attorney fees, the FTC says.
Before filing, you’ll be required to undergo pre-bankruptcy credit counseling.
For Chapter 7 bankruptcy, you’ll also need to pass a means test, showing that you qualify. With Chapter 7 bankruptcy, you must liquidate all your assets that aren’t exempt (e.g. cars, work-related tools, basic household furnishings), while for Chapter 13 bankruptcy, “the court approves a repayment plan that lets you pay off some of your debts in three to five years, rather than give up any property,” the FTC says.
And remember that bankruptcy doesn’t get rid of debt related to child support, alimony, fines, taxes and most student loans.
Making a plan to get out of major debt can be a big challenge. For a couple like Sam and Alison, talking to a non-profit credit counselor can be a good first step to help decide which option makes sense for them and their family.
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Laura Grande is a freelance contributor with nearly 15 years of industry experience. Throughout her career she's written about and edited a range of topics, from personal finance and politics to health and pop culture.
