Withdrawing super to pay debt: What you should know
At Way Forward, we do not provide assistance to withdraw funds from your super. There are usually better ways to manage your debts.
We recommend speaking with a financial counsellor to understand the pros and cons of early withdrawal of super.
Always consult trusted experts and reliable sources when making decisions about your super.
Get help to overcome your debt today.
What is superannuation?
According to ASIC’s MoneySmart, “Super is a way of saving for retirement. Your employer must pay a percentage of your earnings into your super account, and your super fund invests the money until you retire.”
In other words, superannuation is a government-mandated system designed to help you build savings for your retirement. Your employer is legally required to contribute a portion of your earnings to your nominated super fund, which invests the money on your behalf over time.
Before accessing your super for any reason other than retirement, it’s important to think carefully about the long-term impact on your future financial security.
Can I use my super to pay off debt?
Your superannuation is designed primarily for your retirement and early access is limited to specific circumstances.
When it may be possible
- You meet the criteria for severe financial hardship, such as being on eligible income support payments for a required period and are unable to meet reasonable and immediate living expenses. To apply, you will need to contact your super fund.
- You qualify under under compassionate grounds, which includes paying for medical treatment for you or a dependent, modifications to your home or vehicle for a severely disabled person, palliative care for you or a dependent, funeral or burial costs for a dependent or to pay mortgage costs or council rates to prevent the forced sale of your home.
- You have a terminal medical condition.
- You are permanently incapacitated.
- You are a temporary resident who has left Australia and meet the relevant conditions to access your super.
Note: the above is a high-level summary. The ATO website has more information.
Can Way Forward help me decide about using my super ?
At Way Forward, we can’t give financial advice, but we can help you find ways to manage and reduce your debt without touching your superannuation.
We do this by negotiating with your creditors and consolidating your repayments into a single, manageable plan. Our service is completely free, with no fees or hidden costs — so you can focus on getting back on track without dipping into your future savings.
Get help to overcome your debt today.
Should I use super to pay off debt?
Whether you can or should access your superannuation early depends on your individual circumstances and eligibility. It’s important to seek guidance from a qualified and trustworthy source, such as a financial counsellor, before making any decisions.
If you’re in financial hardship, we strongly recommend exploring other options first. Visit our ‘Emergency help & funding’ page for details on free services and support available.
While using your super to pay off debt might feel like a quick solution, it can have serious long-term consequences. Accessing your super early reduces your retirement savings and the compound growth those funds would otherwise earn over many years.
In most cases, it’s best to treat super as a last resort and look for other ways to manage your debts and improve your financial situation.
What’s the long-term impact of using your super to pay off debt?
Understanding compound interest helps explain why accessing your super early can have a big effect on your future savings.
Compound interest means you earn interest on your original balance and on the interest that money has already earned — your savings grow faster over time because they keep building on themselves.
Here’s an example from the website of the Commonwealth Superannuation Corporation:
If Sarah starts with $1,000 and her super grows by 5% a year, after one year she’ll have $1,050.
After two years, $1,102.50.
It doesn’t sound like much at first, but after decades the growth really adds up:
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Year 5: $1,276.28
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Year 10: $1,628.89
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Year 25: $3,386.35
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Year 50: $11,467.40
So, if you withdrew $1,000 from your super today, you could be giving up more than $11,000 in retirement savings — assuming steady growth over 50 years. And that’s just for $1,000. Taking out $10,000 now could mean missing out on more than $100,000 in future savings.
If you’d like to see how compounding works for your own situation, try the ASIC MoneySmart Compound Interest Calculator. It’s a great way to visualise how much your money can grow when left in your super over time.
What else do I need to know about early release of super?
Beyond compound interest, it’s good to keep in mind that:
Super (while in your fund) is protected from bankruptcy and your creditors.
This protection is lost once you withdraw from your fund.
Tax is paid on any super withdrawals.
For example, if withdrawing $10,000, you will end up with approximately $8,000 depending on your circumstances. According to the ATO, “There are no special tax rates for a super withdrawal because of severe financial hardship. It is paid and taxed as a normal super lump sum. If you are under 60 years old, this is generally taxed between 17% and 22%. If you are older than 60 years old, you will not be taxed.”
You may lose insurance benefits such as income protection or total and permanent disability (TPD) insurance.
If you are experiencing financial hardship due to a loss of income, check your super policy to see if you’re covered by income protection insurance or TPD insurance – accessing this insurance may be an option. Please consult your super fund for more information.
Not all super funds allow early withdrawal on the grounds of severe financial hardship or compassionate reasons.
Please consult your super fund for more information on your fund and particular situation.
Banks will not ask you to access your super to pay down debt
Australia’s banks will not ask you to access your superannuation early to pay down debt – this is an obligation under the Banking Code of Practice (there is more information about participating banks here).
What are the alternatives to using super to pay debt?
If you’re struggling to manage your debts, there are many options to explore before dipping into your superannuation.
Depending on your situation, you might be able to:
- ask your creditors for a payment pause (moratorium) or a reduction in interest rates
- consolidate your debts
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renegotiate repayment terms to better suit your current circumstances
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request that part of your debt be waived for genuine reasons
- find extra funds e.g. by selling assets, extra hours at work, making sure you are receiving concessions and grants to which you are entitled.
These approaches can help relieve pressure without affecting your retirement savings.
Bankruptcy may also be an option.
At Way Forward, we provide free, confidential support to put in place affordable payment plans. If we’re not the right service to assist, we’ll connect you with someone who can.
Do you have any lost super?
Data from the ATO reveals that lost and unclaimed super now totals $18.9 billion.
To find out if you might have some money you don’t know about:
- start searching for lost super
- complete a super health check to prevent lost super, understand entitlements and inform decision making.
If you think you may have some lost super, but can’t see it online contact your super fund to confirm your member details and transfer history, then contact the ATO for more assistance.
Am I eligible to use my super to pay off my debts?
You may be able to access your super early in limited circumstances: in broad terms, on the grounds of severe financial hardship or for compassionate reasons.
Before applying, it’s important to understand the long-term impact. Withdrawing super early can reduce your retirement savings and may affect your financial security later in life.
We recommend speaking with a free financial counsellor before making any decisions. They can help you explore other options, such as asking your creditors for a payment pause, renegotiating repayment terms, or in some cases, requesting a partial or full debt waiver.
For free, confidential advice about your situation, contact the National Debt Helpline on 1800 007 007.
To help make things clear, we’ve quoted directly from government sources in the table below.
Two Reasons for Withdrawing Super Early
| Early access on compassionate grounds | Access due to severe financial hardship |
|---|---|
| According to the ATO: You may be able to withdraw some of your super on compassionate grounds for unpaid expenses. This is where you have no other means of paying for these expenses. The amount of super you can withdraw is limited to what you reasonably need to meet the unpaid expense. Compassionate grounds include needing money to pay for:
| According to the ATO: You may be able to withdraw some of your super if you meet both these conditions:
If you withdraw super due to severe financial hardship it is taxed as a super lump sum. The minimum amount that can be withdrawn is $1,000 and the maximum amount is $10,000. If your super balance is less than $1,000 you can withdraw up to your remaining balance after tax. You can only make one withdrawal in any 12-month period. |
| I qualify for the above conditions for early access on compassionate grounds. What next? | I qualify for the above conditions due to severe hardship. What next? |
| You can apply for early access to your super on compassionate grounds on ATO’s website. | According to Services Australia:
For more guidance, head to Services Australia’s web page. |
Recommended sources to learn more about your super:
- MoneySmart is a government-backed website that offers helpful guidance about super including calculators
- Australian Taxation Office offers helpful guides to super
- National Debt Helpline is a not-for-profit service that helps people tackle their debt problems. It is staffed by professional financial counsellors.
How can Way Forward help?
At Way Forward, we cannot provide financial advice, but we can help manage and reduce your debt.
We’re a completely free service and there are no hidden fees or costs. Our dedicated team of professionals are funded by some of Australia’s leading financial institutions, allowing us to help you find your way forward, faster.
How Way Forward can help in simple steps:
Step 1: We understand your situation (we’ll clarify what you owe and help you create a workable budget)
Step 2: We negotiate with your creditors
Step 3: We create an affordable payment plan
Step 4: You make one payment to Way Forward after each pay and we distribute this to your creditors.
