How Medical Bills Morph Into ‘Shadow Debt’ Amid Record High Credit Card Balances

Total household debt surged by $334 billion in the third quarter, reaching $19.1 trillion, according to recent data from the Federal Reserve Bank of New York. However, this massive total does not directly account for medical debt, which often hides in plain sight under other categories.

While an estimated $220 billion in medical debt exists based on federal survey data, consumers often mask these expenses by using credit cards or other forms of borrowing. This creates what experts call “shadow debt”—obscured liabilities that are difficult to track. Jim Triggs, CEO of Money Management International, a nonprofit credit counseling organization, explains that technically, once a consumer pays off a medical bill using another payment mechanism, it immediately transforms into credit card debt, housing debt, or another form of liability.

Triggs noted that 20% of MMI’s debt and budget counseling clients in 2025 cited a medical hardship as the primary trigger for their financial struggles. Compounding this issue, a 2025 study by the Consumer Financial Protection Bureau found that approximately 17% of households surveyed in 2024 still owed money on loans or credit cards taken out specifically to cover medical bills.

Separately, Americans’ credit card debt hit a record $1.29 trillion in the third quarter, while home equity lines of credit jumped to $481 billion—the largest quarterly increase since 2005. These rises reflect broader affordability pressures, with everyday costs continuing to climb amid persistent inflation. Julie Margetta Morgan, president of The Century Foundation, a progressive nonprofit think tank, notes that isolating the exact portion of consumer debt driven by medical expenses is challenging. “There’s a big piece of medical debt that is about people being on high-deductible health plans, so they have insurance, but they’re still getting these big medical bills that they can’t pay,” she explained.

Nationwide, among households carrying medical debt, the median amount in collections stands at $1,492, according to a report by the Urban Institute. This data was drawn from over 10 million anonymized credit bureau records from August 2026.

Medical debt can spiral

Jessica Colon used credit cards to pay medical bills.

Ashley Stringer | Versant Media

Jessica Colon fell into deep debt after she and her husband became self-employed with a high-deductible health insurance plan. The trouble began with an unexpected $16,000 hospital bill for her son’s care in the mid-2010s. “Because I could barely keep up with that payment, I kept charging on my credit card all my monthly payments, and that’s where it all compounded,” Colon recalled. “I was just drowning.”

The credit card balance swelled to over $45,000 before she sought help from a nonprofit credit counselor. The counselor negotiated lower interest rates and structured a five-year repayment plan. “It’s embarrassing, honestly, how much money was interest, and then of course you’re building the interest on the interest,” Colon said. She successfully cleared the entire balance in early 2024.

Experts advise consumers to carefully review medical bills and billing codes for errors, such as duplicate charges, before committing to high-interest borrowing. It is also crucial to ask medical providers about financial assistance programs. Many nonprofit hospitals are legally required to offer written financial assistance plans, yet patients are frequently pushed toward medical credit cards before being informed of these options. “A lot of nonprofit hospitals are not actually offering this plan to people, and in many cases, they’re offering them a medical credit card before they offer that financial assistance,” noted Margetta Morgan, former associate director of research, monitoring, and regulations at the Consumer Financial Protection Bureau.

Colon expressed regret for not negotiating the medical bills before turning to high-interest credit cards, noting the psychological barrier of confronting a provider who is helping your child. “You don’t want to confront the place that’s helping your child. So I didn’t realize that I could do that,” she said.

— CNBC’s Sharon Epperson contributes reporting.

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