Suppose you have been working for quite a while, and you know that you have a moderately sized superannuation fund. But the truth is that using your superannuation to pay off your debts is generally a wrong move.

Using Superannuation to Pay Debts Off: Is That a Good Idea?

For those of us currently struggling with debt, it might be tempting to dip into money tucked away for the far future. At least that would seem better than letting ourselves sink further and further into debt with worse consequences over time. 

That is why one of the more tempting options we tend to look into when it comes to paying off debts is to use our superannuation.

But before we get ahead of ourselves, we have to know what “superannuation” is. Basically, it’s a retirement fund that your employer sets aside for you and puts money into throughout your employment. 

Think of it as a mandatory retirement fund: without it, many people would be financially unprepared when they retire. After all, not everyone has the financial discipline or capability to start saving for retirement as soon as they start working.

Suppose you have been working for quite a while, and you know that you have a moderately sized superannuation fund. In that case, you might think that it would be a wise decision to use those funds to get yourself out of sticky debt situations. 

But the truth is that using your superannuation to pay off your debts is generally a wrong move. 

It’s like taking a loan to pay out another loan, except this time, the lender is the future you, who by then is no longer working and will have no stable source of income. 

How Does Superannuation Work Anyway?

Throughout your employment, your employer sets aside money for you for your retirement. Naturally, the more money in your superannuation, the more money you will have ready for retirement.

The exact amount of money that your employer puts into your superannuation depends on how much you earn. 

The amount is currently at 9.5%: this is the percentage of your earnings your employer is required to put into your superannuation. Throughout your career, this amount will continue to rise.

Generally, the superannuation may be accessed or withdrawn only after retirement or once you reach 65. 

Before retirement, it may still be withdrawn, but only on particular grounds. One ground is compassion, like when you need to use the funds to prevent your house from getting repossessed, or you incur sudden medical or funeral expenses. Another is severe financial hardships, such as paying loans, arrears, and other sudden expenses too challenging to pay off alone.

Still, even if grounds arise allowing you to withdraw your superannuation, it does not always mean that you should. 

In addition to prematurely reducing your available retirement funds, you will also have to go through a lengthy documentation process. You will have to prove that you really are experiencing a severe hardship that will allow early withdrawal from your superannuation.

In fact, other alternatives are available for you to get funds to pay off debts, and these alternatives do not involve time-consuming and complex processes.

What Do You Lose When You Prematurely Withdraw from Your Superannuation?

When you are deep in debt, there is usually a much more significant root cause that you need to handle. Using your superannuation to pay off your short-term debts only removes the short-term problem, but there is still that deeper cause that you do not address.

For example, you have arrears on your car payment worth multiple months. By using your superannuation, it might be possible for you to catch up on your payments. Still, it does not mean that you are now financially capable of paying off all the remaining installments. 

It is also possible that you will end up having arrears again if you do not address the core issue that is causing you to fall behind on your payments in the first place.

Additionally, having a good retirement plan is something that is not easy; in fact, statistics show that a person needs $42,569 every year on average to be on track towards having a retirement fund. 

That is already a high number in itself. If you make a premature withdrawal on your superannuation, you might need to make more money in the future if you want to get back on track.

What Else Can You Do Aside from Dipping Into Your Superannuation?

When it comes to solving temporary problems, there are always less drastic alternatives available that do not require you to withdraw from something as important as your retirement fund.

  • Cut down on your spending — whenever you are deep in debt, one of the first things you can and should look into is your spending. If you are not already tracking how much you spend every day down to the last cent, you should start doing so. You might be surprised at how much small, unnecessary expenses can stack up and eventually prevent you from paying your bills and your debts on time.
  • Build an emergency fund — this is more of a preventive measure than anything else. When you receive your salary, try to always allocate a portion of it to a fund that goes for unexpected emergencies. That way, when you run into sudden expenses again, you have a fund other than the retirement fund that you can always dip into.
  • Opt for alternative debt solutions — When it comes to rearranging the terms of the debt, creditors almost always allow for consolidation or rearrangement that allows you to be more flexible when it comes to paying debts, as long as it means that you will be able to pay consistently. While it could mean that you eventually pay more in the long run, these debt solutions can also make your regular payments more manageable.


No one likes to be deep in debt but withdrawing from your retirement funds in order to pay off a present debt is almost never a good solution for you in the long run. 

While you might think that being able to catch up on your payments now is a good thing, it will eventually bite you back in the future when you are no longer earning.

When you retire, your focus should be on living peacefully with the money that you have built up throughout the decades. You are most likely no longer earning at that point, so the last thing you should be worrying about is how to build funds when you suddenly find yourself short.

Debt is a long-term problem and should be addressed with long-term solutions and preventive measures. Build good financial habits while you are still earning, and pinpoint the exact reasons why you find yourself falling into debt. Perhaps you are taking out more loans than you need to, or you are living a lifestyle that is way above your means.

Whatever the cause of your debt, the best way to practically handle it is to look at it as something that is caused by multiple factors that cannot be erased with just one withdrawal.

The goal for retirement is financial stability, and the only way to achieve a high level of stability is to establish good financial habits. Let your retirement fund be a retirement fund, and address your debts in other, less drastic ways.

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