Have you seen articles circling the internet about people going bankrupt from medical bills? Have you wondered why it always seems to be a hot topic of interest?
It’s no secret that medical costs and healthcare expenses are soaring beyond what most people can cover on their own. Every year, it’s getting more and more expensive to treat your medical issues.
A single trip to the emergency room can easily stack up to hundreds or even thousands of dollars. Sometimes health insurance is nowhere near enough to save people from massive debts when they’re hit with a serious illness or injury.
According to recent statistics, healthcare costs in the United States have been increasing consistently for several years, and in 2018 these numbers grew by 4.6%. The average American was spending $11,172 on healthcare costs alone in 2018. The total amount of medical expenses in America reached over $3.6 trillion.
But are increasing healthcare costs the only reason why we keep seeing articles in the media about bankruptcy? Not quite.
There are specific research studies that were done regarding medical bankruptcies several years ago that started a debate among policymakers, healthcare professionals, and the general public. Going bankrupt from medical bills is often an unforeseen tragedy that patients never expected to happen.
Going bankrupt from medical bills and the rise of healthcare expenses has always been a topic that stirs up a lot of conversations, as we see more and more people falling deeper into debt and even going bankrupt. In this article, we’re going to take a closer look at this ongoing debate, talk about what you can do to prevent yourself from going bankrupt.
Are People Actually Going Bankrupt From Medical Bills?
The ongoing debate about medical expenses and going bankrupt from medical bills all started when Elizabeth Warren and her co-authors published a 2005 Harvard study. The study stated that more than 40% of all bankruptcies in the United States were caused by medical debts. In 2009, the researchers published an updated research version of the study, claiming that medical debts were responsible for more than 60% of all bankruptcies in the United States.
After these studies were released, a huge debate began over the issue of medical bankruptcies. Some argued that medical debt was largely responsible for Americans going bankrupt, and others argued that medical debt was responsible for a smaller number of bankruptcies.
Since the release of the two studies, there were a number of other reports coming in from other studies supporting the claim that most bankruptcies were caused by medical debts. Likewise, many studies arguing against that claim were released as well.
A Counterargument From MIT Researchers
One major study made a counterargument in the New England Journal of Medicine. Amy Finkelstein and her team of MIT economists said that medical expenses were responsible for roughly 4% of bankruptcies among non-elderly adults in the U.S. If you compare this to Warren’s results, there is a huge gap in the numbers.
They reported that the statistics in Warren’s study might have been skewed because of unreliable research methods. Here is a summary of their critique.
One particular flaw they found was that Warren and her team surveyed a group of people who had already declared bankruptcy.
From that group, they asked if those people experienced health-related financial distress like having too many medical bills or losing income because they were too sick to work. They were also asked if they went bankrupt because of medical bills.
And from those results, the research team concluded that people who reported having any of those financial distresses filed for medical bankruptcy. The problem with this was that it assumed if people didn’t report any health-related financial distress then they wouldn’t have gone bankrupt.
What does that mean?
With that assumption, you could ask the same group of people if they experienced other types of financial distress like housing costs, car payments, education costs, etc. And chances are, you’d probably find a majority of those people reporting that they experience these types of financial distresses too.
If that’s true, would it mean that housing costs were responsible for their personal bankruptcies?
You see, with an assumption like this, it’s hard to say if the culprit for bankruptcies are because of medical bills, other sources of financial distress, or a combination of everything.
How Was the MIT Study Conducted?
Instead of conducting a survey on people who had already been admitted to the hospital, they studied people who were hospitalized because of a new illness or injury. And they looked at how many people filed for bankruptcy after they had been admitted to the hospital. Compared to the Harvard study, they found only 4% of bankruptcies were related to an illness or injury.
However, it’s important to note that 4% is still a large number of people who resort to bankruptcy because of illness or injury.
Are Medical Bills the Only Problem to Blame?
For most people, it is the accumulation of different financial expenses that push people into bankruptcy. And going bankrupt for medical reasons can involve a variety of factors. Sometimes it’s because they’re too sick to go work, and end up losing income, on top of having to pay their medical bills. If you’re not self-employed and you have an employer, sometimes you can take time off with pay if you have a serious illness, but it’s often only a percentage of your regular income.
And if you’re self-employed, you often won’t have any coverage when you need to take time off work to recover from an illness.
These people can’t afford to pay for outstanding financial expenses. Apart from medical bills, people were suffering from a good handful of debt like credit card debt, auto loans, payday loans, and personal debt for personal consumption. These are what I like to call bad debt. It doesn’t generate money. It doesn’t make you richer, it makes you poorer.
Taking a look at the numbers, consumer debt and bankruptcy plagues so many Americans. In November 2019, the United States consumer debt rose to $4.17 trillion.
Over the span of 7 years since the 2010 recession in the U.S., consumer bankruptcy went from 1.5 million to 767,721 in 2017. Even with the decrease in bankruptcy cases, there’s still a lot of people suffering from these financial burdens.
According to bankruptcy attorney Daniel A. Austin “it’s important to stress that in most cases, no single element can be cited as the ‘cause’ of bankruptcy. The decision to file bankruptcy is typically the product of factors such as long-term financial patterns, family and lifestyle decisions, job loss, and sudden adverse events.”
Researchers will continue to disagree on what the leading cause of bankruptcy is. However, one fact stands true:
The Final Verdict on Medical Bankruptcy
It’s undeniable that the rise in medical expenses are a financial burden for people but it’s also important to note that there are many other reasons why people file for bankruptcy as well.
Whether or not most people are going bankrupt because of medical expenses is a debate that will continue to be a topic of interest among the general public, on political platforms, and in academia.
Are You Using Debt to Make You Richer or Poorer?
Now that you know that debt is one of the main reasons people are going bankrupt, let me ask you a question. Do rich people and poor people both have debt?
If you answered yes, then you’re right. If that’s true, then what separates the rich from the poor? Why do poor people go bankrupt more often than rich people?
Let’s first answer the question: What exactly is debt?
Think of debt as a weapon, like a sword. You can use it to either cut your enemies and protect your family or you can use it to cut yourself. So you can have two kinds of debt: good debt and bad debt. In truth, there’s not really any such thing as ‘good’ debt, because debt is debt, but obviously some types of debt are better than others.
But instead of using the word ‘debt’, I want to teach you a new vocabulary. Why? Because the word ‘debt’ itself often has a bad reputation. People tend to think of debt as something bad or dangerous. Because when most people refer to debt, they’re thinking about how it’s taking money out of their pocket and making them poorer.
So starting today I want to teach you a new vocabulary. I want you to think of debt as leverage. If you think about it, debt is nothing more than borrowing money from someone or an institution to perform an activity. And that activity can make you richer or poorer. This is the rare time that debt (leverage) can be good.
Is There Such a Thing as Good Debt?
Debt is debt, but let’s discuss what people mean by ‘good debt’. For example, let’s say you take out a business loan that you borrow from the bank to buy new software. This software will help you hire more employees, streamline your business, and help your company grow. That is sometimes considered good debt. Many people consider it good debt if it’s a business loan that you’re leveraging to grow your business, make more money, and increase your revenue.
Or let’s say you take out a mortgage loan that you borrow from the bank to invest in an investment property. This is also considered by many people as good debt because you are leveraging the bank’s money to invest and make more money.
Another example could be a student loan that you borrow from the government to go to school and improve your skill sets so you can deliver more value to the marketplace. This would also be considered good debt by some people.
But notice how it’s often not so much about the debt itself, it’s the person that’s borrowing the money.
Now, what do I mean by that?
I’ll give you two different scenarios. Going back to the example with the entrepreneur borrowing money from the bank. If the entrepreneur is smart and wise and she uses that money to grow the company and generate more revenue, then that could be good debt.
On the other hand, let’s say there’s a different entrepreneur under the same circumstances. She borrows money from the bank but suddenly makes a bad investment and buys the wrong software. Or she tries to expand too quickly and now the business is losing money. Well, by comparing the two scenarios, the entrepreneur went from having good debt to now bad debt.It’s not about debt being good or bad, it's about the person who is borrowing the money. Click To Tweet
The Destructive Power of Bad Debt
Now, let’s take a look at bad debt, the worst kind of debt you could ever have.
Yes. I’m talking about car loans, payday loans, credit card debt, personal debt, or any other type of debt that you’re borrowing for the sake of your own personal pleasure. It doesn’t do anything to generate money. If anything it’s draining money from your bank account. It doesn’t make you richer, but it makes you poorer.
You see, with debt. It’s not so much about the debt itself being good or bad, but more about the person who is borrowing the money. As you saw earlier in an earlier example about the entrepreneur, she went from having good debt and turned it into bad debt. Both entrepreneurs had the exact same business loan, but one used it for growth and the other didn’t.
So if debt is a form of leverage. Ask yourself, “How do you use this leverage to make you richer or poorer?”
If you think about all the millionaires and billionaires in the world today, almost every single one of them uses debt, or leverage, in some form.
I can tell you from my own personal experience, that I’ve had my fair share of a lot of bad debt. If you’re familiar with my story, when I first started out as a young entrepreneur I failed at 13 businesses and was $150,000 in debt before I found my first business success.
Over the years, I’ve managed to gradually pay off all of my bad debt and fast forward to today, I now have very little bad debt , but I’m using ‘good debt’ to make me richer, make more money, and grow my organization.
3 Simple Steps to Get You Out of Debt:
Below are 3 simple steps to follow if you want to get out of debt:
Step 1. Focus On Increasing Your Income, Not Lowering Your Debt
Take a moment to think about your current income. If you’re making the money that you’re making right now, how long would it take you to pay off all your debt? Would it take you three months, six months, 1 year, 2 years, 5 years, 10 years, or 20 years to pay off your debt?
When you think about the debt you owe in this perspective, it can seem very overwhelming. You might be thinking, “How on earth am I going to pay off all this debt?” So wouldn’t you agree it’s unrealistic to believe that you can be debt-free or get out of debt with your current income?
If you think about it, for most people, doing something like that would be virtually impossible. So what’s a better and smarter way to approach this problem?
Focus on increasing your income so you can pay off that debt faster. And here is what I suggest you do. It doesn’t matter if you have a job or a business, what you need is a High-Income Skill.
It is a side hustle that could help you make extra money on the side in your spare time. You can do this when you’re not at work or when you’re not in your business to bring in more money so you can pay off your debt faster.
Step 2. Use Good Debt to Invest in Yourself
If you remember earlier, debt is nothing more than leverage. Even back in my early 20s, when I was $150,000 in debt I was continuously investing in myself. What does that mean?
I was investing in different courses and programs to upgrade my skills. I say this all the time. Money earned is a byproduct of value creation. So if you want to make more money, you need to deliver more value.
In order to deliver more value to the marketplace, guess what? You need to improve your skills. Everyday, I have people coming up to me saying they want to make more money. But they never stop to think about working on their skills. You see in life you don’t get what you want, you get what you deserve.
When I was in debt, everyone was telling me I was stupid because I was investing $500 on courses and $1,000 on seminars even though I was already $150,000 in debt.
But to me it didn’t matter, because investing in these courses didn’t change anything about the debt I was already stuck in. If anything, I just wanted to invest in myself to see if I could pick up at least one gem from what I learned so that I could implement it and change the course of my life. And you know what? That is exactly what happened.
So you don’t have a debt problem, you have a skill problem. But if you work on your skills so you can make more money, then your debt problem will cease to exist.
Step 3. List Out Every Single Debt That You Have
When you do this, you need to make sure you are crystal clear and very specific with your numbers. List every debt with their exact values and do not round them. So for example, you might have a big credit card debt of $5,623.09, a student loan of $10,212.51, a car loan of $8,774.76, a small credit card debt of $1,203.50, etc.
Just like this. I want you to list everything out very accurately. The reason is because oftentimes when all the numbers are floating around in your head, the actual amount of debt you have feels bigger and overwhelming.Clarity is power, vagueness is weakness. Click To Tweet
But when you write it all out on a piece of paper, you’ll have more clarity. It will feel less overwhelming. You’ll be able to see your problems more clearly and start to tackle them one by one. Now, what I’m going to share with you goes against what every single financial advisor or expert will tell you.
Why Every Financial Expert Will Teach You Logic and Why Nobody is Teaching You What Works
Here is what I want you to do. Using the numbers above, let’s say your major credit card has a 20% interest rate and your other credit card has a 12% interest rate. If you ask any financial expert out there, they will tell you to pay off the debt with the highest interest rate first. The one that is costing you the most amount of money.
You might think, “Oh okay, that makes sense, let’s do that.” It sounds like a logical answer, right? But here’s the problem. Human beings are not logical, we are emotional beings. So instead of paying off the one that has the highest interest rate. This is what I recommend.
I would pay off the small credit card debt first and here’s why. I want you to choose the debt that will have the best psychological impact for you once you pay it off. Choose the debt that’s been bothering you the most, for the longest. It’s the one that when you pay it off, you will feel so good, so free, and so alive. Pay off that one first, even if the interest rate is lower.Small success leads to bigger success. Click To Tweet
Something powerful happens when you do this. When you finally pay off that first little bit of debt suddenly you’ll feel like you have the ability to pay off the rest and start crossing them off one at a time. Until you pay off the one that has the biggest, psychological payoff, the rest of the debt just feels overwhelming.
Do You Want To Learn How You Can Free Yourself From Debt And Bankruptcy With This ONE Skill?
Earlier I explained that the fastest way to get out of debt is by learning a High-Income Skill. How would you feel if I told you there is a High-Income Skill that allows you to earn 6, 7, or even 8 figures a year in your spare time? How would an extra $10,000 a month change your current financial situation?
This is a skill that pays you based on how much value you can deliver to the marketplace. So the more value you deliver and the faster you deliver results, the more you get paid. It’s a skill that influencers, businesses, and companies are hungry for.
Imagine what it would be like if you could start earning $10,000+ or more every month with nothing but a phone and internet connection.
This is a skill that I learned myself when I was climbing my way out of debt and this skill is called High-Ticket Closing. If you want to learn how you can get paid handsome commission checks and start earning recurring income from the comfort of your own home, click here to watch day 1 of my free training.