Early superannuation withdrawal isn’t just reserved for Coronavirus-related emergencies. In fact, it can also be accessed during other times of high financial stress.
If you’re in a struggle to repay your debts, you could be contemplating using some of this retirement money for those payments. You might think your super is a great source of funds to get out of debt and a financial bind.
Your super is a tool to prepare for your retirement. While it seems harmless to rely on it when you need it most, you’d be risking the funds you’ll need to live when you retire.
Claiming Super Early
When is the time to withdraw your superannuation? Supposedly, the money is reserved for your retirement, but there are grounds when you may be allowed to tap into these funds early.
With Compassionate Grounds, it’s meant to prevent repossession of your home because of unpaid mortgage. Accessing your super early could also be allowed to pay for important costs like disability, medical care, or funeral expenses. Another ground is Severe Financial Hardship, such as loan repayment, car repairs, rent arrears, and outstanding bills.
However, you need to prove financial hardship by providing supporting documents and information. The process can be time-consuming, and there are other options you should take before an early release of superannuation.
Why you Shouldn’t Release Superannuation Early to Repay Debt
Truth is, dipping into your superannuation to repay debt is a bad move. Claiming super early to pay the arrears on a loan could be risky as you’re decreasing the amount of money for your retirement. That’s not an effective way of managing your debt in the long run.
Just because you can, doesn’t mean you should. Perhaps you could look at alternatives, such as debt consolidation, building an emergency fund, budgeting, and more.
There are numerous debt solutions that don’t require claiming your super early. Debt consolidation, debt arrangements, and other options are there for you to utilise if you need to.
Debt consolidation is combining debts into a single loan. Usually, it has more favorable terms, such as lower interest rates or monthly repayments, or both.
Another important tip to avoid needing cash for unexpected financial difficulties is to build an emergency fund. Saving for emergencies is a better option than claiming your super early.
You should have at least $500 in a savings account for life’s unexpected occurrences. It will keep you above water for a while.
Make sure you are properly budgeting every month and making your repayments accordingly. Learning how to budget correctly could help cut down the unnecessary spending and free up more funds to repay your debt.
How Cigno Loans Can Help
Thinking of using your superannuation early as a temporary solution to get out of debt can be tempting. However, that money is intended for when you retire, so it’s better to keep it that way.
Cigno Loans can help you make those payments without touching your super. Contact our team today to learn about how you can repay your debt using the various loan types that we offer.
Check out more Cigno Loan Types
Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.