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The pros and cons of using super to pay off debt
By MyBudget Editor

Is it possible to use superannuation savings to pay off debt? And is it a good idea? We look at the pros and cons, which debts are eligible for early super release, and whether it’s worth it.

The rules of superannuation

Your superannuation savings are yours. The money’s sitting right there. You can see the balance. But you can’t touch it until retirement. For someone who’s financially stressed, this can be incredibly frustrating. What use, one might wonder, is having money set aside for retirement if I can’t use it to pay my bills today?

Superannuation, or 'super' as it’s called, is part of your income put aside by your employer. The money goes into a savings account which adds up over your working life to provide money for your retirement. According to the Australian Taxation Office website, when you reach the preservation age (currently 55 to 60, depending on when you were born) you can withdraw all of your superannuation if you're fully retired or up to 10 percent a year if you’re still working. At 65, you have access to all of your super, whether you’re working or retired.

Rules are made to be broken

The government recognises that there are situations where it makes sense for someone to access their super early. After all, looking forward to retirement is irrelevant for someone who can’t afford lifesaving medical treatment today. Similarly, super is little comfort to someone facing the forced sale of their home and the huge financial losses that might come with it. For this reason, the government has provided two grounds for early access to superannuation savings:

  • Financial hardship: This covers “reasonable immediate family living expenses,” such as rent arrears, loan repayments, bills, car repairs and medical expenses
  • Compassionate grounds: This covers medical, disability or funeral expenses or money to prevent the sale of your home due to unpaid loan repayments or council rates.


To be eligible on financial hardship grounds, you would need to have been receiving government income support for at least six months continuously and not be able to meet your living costs. Hardship applications may be made directly to your super fund. Keep in mind that different funds have different rules and they are under no obligation to approve your application.

For early release of super on compassionate grounds, applications are processed by the Department of Human Services. Eligible reasons include:

  • Paying for medical treatment for you or a dependant
  • Making a payment on a loan to prevent you from losing your house
  • Modifying your home or vehicle for the special needs of you or a dependant because of a severe disability
  • Paying for expenses associated with a death, funeral or burial of a dependant

The pros and cons of early super release

For some people, an early super release could be the key to critical medical treatment or being able to live independently. For others, it could be the difference between losing and keeping their home or other assets or having to declare bankruptcy. 

The negatives, however, deserve careful consideration. Firstly, there’s a limit to how much money you can withdraw. For financial hardship, the maximum amount is $10,000. In the case of mortgage arrears, the maximum is three months of repayments and 12 months’ interest on the outstanding balance of the loan. For council rates, the amount is capped at the value of arrears.

Taking money out of your super early means you’ll have less money for retirement. It would also give your creditors (companies and people you owe money to) access to savings that they wouldn’t normally be able to touch. That being said, it would get those creditors off your back. 

Consider all of your alternatives

Keep in mind that accessing your super is just one potential debt strategy. What if you could refinance? Or pay your way out of debt? Or negotiate a break from payments while you get back on your feet? 

There’s only really one considered way to know if any of these approaches are possible and that’s to create a detailed budget. By that, we don’t mean a budget scribbled on the back of a serviette. We’re talking about a customised money plan that captures all of your income and expenses over a 12-month period. With a plan like this, you’re able to analyse cash flow, model different scenarios and map your way out of debt. You’ll have a bird’s eye view of what you can and can’t afford.

That’s what we do at MyBudget. We meet with you to go through your financial commitments and come up with a detailed, customised money plan that gives you absolute visibility over your finances. A budget is the only way to understand what is and isn’t possible, and it’s one of the foundations to making clear financial decisions.

To take advantage of a free budgeting consultation, contact MyBudget today. The budget we design for you is yours to keep.

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