How to Pay for Unexpected Dental Expenses

December 05, 2016

Last week, I cracked a molar, the second time in two months, and my dentist just informed me that the only way to prevent more of this going forward is to get braces. My total costs for dental care not reimbursed by my insurance carrier this year exceeds $3,000, and the cost of braces could be up to $10,000 over the next few years. Needless to say, I was not expecting this at all. I’ve taken great care of my teeth my entire life. However, as an apparent consequence of having kids in my forties (which caused my teeth to move during pregnancy) three years of teenage braces have been undone, causing stress fractures in my teeth when I bite.

Perhaps I should have expected it though. Unexpected dental expenses happen. In fact, they are more common than not, so perhaps they should be considered “expected but unpredictable” — and expensive. On the average, per an American Dental Association (ADA) study, only 48% of dental expenses are financed by private insurance.

The typical dental insurance plan is capped at $1,500 in coverage per year. If you have an unexpected dental expense that you aren’t financially prepared for, how can you handle it? Here are some ideas:

Flexible spending account

An FSA is a tax-advantaged account at work to which you can contribute up to $2,600 in 2017 from your paycheck in order to pay certain medical and dental expenses. If you already contribute to an FSA, that’s the perfect source to pay for most dental treatments that haven’t been covered by insurance. If your dental treatment is not urgent or can be spread out over time, consider putting it off until the following year, so you can choose to fund an FSA during your benefits enrollment. FYI, if you already contribute to a health savings account, you’ll need to choose a “limited purpose” FSA (just for dental and vision expenses) in lieu of a regular FSA. For tips on using an FSA, see this blog post.

Finance it

Dental problems don’t heal themselves. If you need treatment, but you don’t have resources available to pay in full right now, you may want to consider financing:

Credit card – The advantage of putting the charge on your credit card is that it’s easy and immediate. The disadvantages are significant though: high interest rates, lower credit score (from higher credit card utilization) and reduction in monthly cash flow from credit card payments.

Personal loan – For a borrower with a good credit score, a personal loan may be a good alternative. Rates are generally lower than credit cards. Because a personal loan is considered installment debt (like a car loan or a mortgage), it may actually help your credit score.

You’ll still see a reduction in your monthly cash flow from loan payments though. Make sure you choose a reputable lender with low fees. See this article for more tips on finding a personal loan.

Dental office payment plan – For treatment plans that stretch out over time, your dentist may offer you the option of a payment plan, typically financed by an outside company. However, a dental office payment plan can have a very high rate of interest, more than a credit card. Be cautious and make sure you read all the fine print before you sign.

401(k) loan – A small loan against your retirement plan balance can be processed fairly quickly, without a credit check or any reporting to the credit bureaus. You’ll be repaying yourself via after-tax payroll deductions at a low rate of interest. There are downsides, however, including when you leave your company for any reason, any unpaid loan balances typically become due in full or are considered an early retirement plan distribution – subject to income taxes and a 10 percent penalty for early withdrawals.

Consider a dental school clinic

Many top dental schools offer affordable care from dental students and residents. This can save you fifty percent or more on the cost of your treatment. Search “dental school clinic” online for clinics or search this list of accredited dental schools near you.

What I chose

Luckily, I was able to dip into our cash reserves to pay my dentist for this year’s treatment. That’s what emergency funds are for, after all. I can’t say I enjoyed having to spend the money though.

I also chose to defer the decision about braces until next year, so I have time to weigh the pros and cons. We have some new benefits at work and no longer have access to a limited purpose FSA, so that’s not an option for me. I have some regrets, though, for not funding a limited purpose FSA for 2016. It would have come in handy.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

How to Decide if You Can Afford a Large Purchase

September 28, 2016

I’ve often read that September and October are the best months to buy large appliances. Since our washer and dryer are showing signs of calling it quits, I’ve been thinking about whether or not we should go ahead and buy new ones while they’re on sale. When trying to figure out whether or not it’s the right time to make a big purchase like this, including cars, furniture or even booking a long-awaited vacation, there are a few ways to look at whether you can afford it.

Cash is King

Ideally, you’d pay cash. As long as you don’t need to dip into your emergency fund, paying cash for the purchase of depreciating assets (or stuff that you won’t be able to sell for as much or more than you paid for it) is the best way to go – yes, even for cars. (For help saving up, try the no-tracking budget.)

Same as Cash or 0% Promo Rates

If you don’t have the cash saved yet, then look at same-as-cash financing deals, but only if you can actually pay the balance off BEFORE the interest kicks in. To figure out if you can afford to do that, divide the purchase price by the number of months you’d get interest-free. For example, if it’s a $1,500 purchase on a 90 days same-as-cash deal, you’d have to pay $500 per month.

Can you afford that payment? If not, don’t use the same-as-cash deal. It’s not worth it.

If you’re using a credit card with a zero percent promo rate, the same rules apply. It’s only a deal if you can pay the balance in full by the end of the promo rate. Otherwise, the high interest rate that will kick in will inflate the price of the purchase beyond reason.

Financing with a Loan or Credit Card

If same-as-cash or zero percent financing isn’t available (or you wouldn’t be able to pay the balance by the time the zero percent period ends), then there are a few things to consider before you take out a loan or use a credit card. First, make sure you’re considering the total purchase price including interest. To figure out how much interest you would pay, use the cost of credit calculator. When you add the interest to the amount you’d be paying for the purchase, is it still a good price?

Debt Rule of Thumb

Finally, anytime you’re considering adding a new monthly payment to your budget, make sure that your total debt payments won’t exceed 36% of your gross income. For example, if you make $50,000 per year, then you would want to keep your debt payments to $18,000 per year or $1,500 per month, including your mortgage. So if you have a mortgage payment of $1,000 and a student loan payment of $250, and you’re looking to finance a car, you could reasonably afford a $250 per month payment.

In a perfect world, you would never finance something that you couldn’t sell for its purchase price or higher. This is why it’s a financial folly to charge clothes or food on a high interest rate credit card if you’re not paying the balance off every month. But in times when debt can’t be avoided, having a plan to pay it off is the best way to avoid getting yourself in financial hot water.

If you have other pressing questions that we can answer on the blog, send me an email, and I’ll do my best to help. Did you know you can sign up to receive my blog posts every week, delivered straight to your inbox? Just head over to our blog main page, enter your email address and select which topics or bloggers’ posts you’d like to receive. Obviously, I suggest at least “Posts from Kelley.” Thanks for reading!