After today’s brush with small claims court over an old hospital bill, I started to think about the nature of bills and debts. At what point does something cross the line from a bill to a debt? Are all bills a form of debt?
Wikipedia defines a bill as a commercial document issued by a seller to a buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer while a debt is an obligation owed by one party (the debtor) to a second party, the creditor. Those definitions sound pretty similar to me.
In common usage, a bill usually refers to a one time payment. Even in the case of ongoing subscriptions, there is one payment for one instance of service, whether a copy of a magazine or a month’s worth of cell phone usage. Meanwhile, a debt usually refers to an amount that is paid over a series of payments.
The blurry line between bills and debts
Now here is where it gets tricky. Sometimes a bill has payment terms where it is paid over multiple payments. While it is rather ridiculous to think the average person able pay several thousand dollars in such a short time, my local hospital allows payment for services via four equal payments. At this point, it is not treated as a debt and is not reported to credit agencies. If payment cannot be made under those terms, patients are then forced to procure a loan to pay the bill. Then it is considered a debt.
In the other direction, you have credit cards. A balance on a credit card is universally considered debt. But what if you pay the balance off in a single payment? Is it still considered a debt?
Maybe the dividing line could be interest. If there is no interest, then it is a bill due. If there is, it a debt owed. That has been my working definition on what to treat as a debt and what to treat as a bill. But no-interest introductory offers for credit cards make that difficult. I’ve been using one myself.
I needed a crown on one tooth and my options had been to wait three months (and possibly the had the tooth deteriorate further) while I saved up the money, or take advantage of a medical-only credit card called CareCredit that offers 6 months interest free for each purchase. So now I’m 2 months into three interest free payments to pay for services already rendered. But I haven’t treated it like a debt, even though it technically is, because there has been no interest and a shorter repayment period than what the hospital offers before they treat their bills as debts.
I’m considering reconsidering. One the one hand, it doesn’t really make a difference to my budget if something is considered a debt or a bill. On the other hand, it feels a little dishonest when I post my net worth updates. As of last month, I had $4651 listed as medical debt. But that doesn’t include roughly $2000 in other medical bills that alternate arrangements had been made.
What do you consider the difference between a bill and a debt? Do you think I should include the other two grand of medical bills as part of my debts?
In the 2013 Tour de Personal Finance, I made it to round 2! Please vote for me by entering the word “wage” in the comments at: http://www.mypersonalfinancejourney.com/2013/07/tour-de-personal-finance-stage-12.html