Medical expenses can wreak havoc on your finances if you aren't prepared for them. And unfortunately, most Americans aren't. Only 45% have used savings or available cash to pay for a medical expense in the past year, according to Freedom Debt Relief's new survey on healthcare costs.

On the other hand:

  • 42% have had to charge medical expenses on a credit card
  • 19% have borrowed money from family or friends
  • 11% sold something
  • 8% have gotten a cash advance
  • 7% took out a personal loan
  • 6% got a payday loan

Furthermore, if faced with a $2,000 medical emergency, only 35% of those surveyed would use savings or available cash to cover it. It's not surprising, then, to learn that the majority of Americans have $1,000 in medical debt or more, with 10% owing $20,000 or more for health-related expenses.

Doctor taking man's blood pressure


If you're ill-prepared to deal with medical expenses, your finances could very well take a long-term turn for the worse. Medical bills are actually the No. 1 source of personal bankruptcy filings in the country, and if you don't take steps to prepare for them, you may have no choice but to damage your credit and subject yourself to a world of stress when yours start to pile up.

Equipping yourself to tackle medical bills

Falling behind on medical bills can damage your credit just as failing to pay your electric or phone bill can. And if you charge medical expenses on a credit card and pay it off over time, you're going to rack up interest charges that only cost you more money you can't afford.

A better bet? Take steps to prepare for medical bills, because let's face it -- they're sort of inevitable.

For starters, build an emergency fund -- one with enough money to cover the equivalent of at least three months of living expenses. And if that's not doable, at least save enough to cover the cost of your annual health insurance deductible so you're not left scrambling to pay it.

You can build cash reserves by following a tight budget and cutting back on non-essential expenses, like meals outside the home and entertainment. You can also try getting a second job on top of your main one, at least temporarily, to drum up extra cash.

Additionally, if you're eligible for a health savings account, or HSA, it pays to fund one. The money you contribute goes in on a pre-tax basis, the same way you reap tax savings from a retirement plan like a traditional 401(k) or IRA. Then, you can withdraw funds you need immediately for medical bills or carry unused funds forward indefinitely, all the while investing them while they're in your account so they grow into a larger sum.

Finally, make sure you understand your health benefits. Doing so could help you lower your out-of-pocket costs. For example, your insurance company may not pay for services that are out of network, so if you make sure to see providers who are covered, you'll avoid that added expense.

The fact that only 45% of Americans have savings or cash on hand to pay for medical bills is frightening. If you're not part of that percentage, start making changes so your next major health event doesn't wreck your finances for good.