Medical Bills Drive Record Household Debt as Credit Card Balances Surge

Household debt in the United States climbed by $334 billion during the third quarter, reaching a total of $19.1 trillion according to data released by the Federal Reserve Bank of New York. While this aggregate figure does not explicitly list medical obligations, experts warn that a significant portion of this debt originates from healthcare costs that have migrated into other financial instruments. This phenomenon is increasingly described by financial analysts as shadow debt, a term used to describe medical bills that are paid off using credit cards or other forms of borrowing rather than direct payment or insurance reimbursement.

An analysis of federal survey data from 2021 by the nonprofit healthcare research group KFF estimates that approximately $220 billion in medical debt exists in the country. Jim Triggs, the chief executive officer of Money Management International, a nonprofit credit counseling organization, explained that once a consumer uses a credit card to settle a medical bill, the obligation technically transforms into credit card debt. Triggs noted that in 2025, about 20% of the organization's counseling clients cited a medical hardship as the primary reason for their financial distress.

This trend is supported by a 2025 study from researchers at the Consumer Financial Protection Bureau, which found that roughly 17% of households surveyed in 2024 still owed money on loans or credit cards used for medical expenses. The broader financial landscape reflects growing pressure on consumers, with credit card debt reaching a record high of $1.29 trillion in the third quarter. Additionally, home equity lines of credit saw their largest quarterly increase since 2005, rising to $481 billion. These increases are occurring against a backdrop of persistent inflation and higher costs for everyday goods.

Julie Margetta Morgan, president of The Century Foundation, a New York-based think tank, described the challenge of separating medical debt from other liabilities as difficult. She highlighted that a major driver of this issue is the prevalence of high-deductible health plans. Many individuals have insurance but still face substantial out-of-pocket costs that they are unable to pay directly, leading them to rely on credit. Margetta Morgan, who previously served as an associate director of research at the Consumer Financial Protection Bureau, emphasized that this structural issue leaves many insured Americans vulnerable to significant debt.

According to the Urban Institute, the median amount of medical debt in collections nationwide is $1,492. This data was derived from a report analyzing more than 10 million anonymized credit bureau records from August 2026. The report underscores how medical expenses can quickly accumulate when they are not addressed through insurance or direct payment, pushing consumers into collections if they are managed through high-interest credit products.

Jessica Colon, a 50-year-old resident, shared her personal experience with this cycle of debt. In the mid-2010s, she and her self-employed husband faced an unexpected $16,000 hospital bill for their son's care. Because she struggled to make the payments, she used a credit card to cover the monthly installments. Colon described the situation as overwhelming, noting that the debt compounded over time as interest was charged on the existing balance. The credit card debt eventually grew to more than $45,000 before she sought help from a nonprofit credit counselor.

A counselor negotiated lower interest rates and established a five-year repayment plan, allowing Colon to clear the debt in early 2024. She expressed regret over the amount of money lost to interest, particularly the compounding effect of interest on interest. Colon stated that she wishes she had negotiated the initial medical bill before placing it on a high-interest credit card, a common oversight for consumers who feel hesitant to confront healthcare providers who are treating their family.

Financial experts advise consumers to review medical bills and billing codes for errors, such as duplicate charges, before assuming debt. They also recommend asking providers about financial assistance options before signing up for medical credit cards. Many nonprofit hospitals are legally required to maintain written financial assistance plans, yet Margetta Morgan noted that these plans are not always offered proactively. In many cases, providers present medical credit cards before informing patients about the financial assistance they may be eligible for.

The surge in credit card and home equity borrowing highlights the intersection of healthcare costs and consumer finance. As inflation continues to affect everyday expenses, the reliance on credit to manage medical bills remains a significant factor in the overall growth of household debt. Consumers are increasingly encouraged to take a proactive approach to managing healthcare costs to avoid the long-term financial burden of shadow debt.