Financial hardship: what is it and how can you regain financial control?

20 October 2020
Many Australians are currently experiencing some form of financial pressure, with statistics from the Australian Financial Security Authority showing one in five Australians would not be able to access $2,000 in an emergency.

If your combined outgoings (what you spend) exceed your income over time, this is called financial hardship. More to the point, financial hardship is where these outgoings – no matter how much you pare them back – simply cannot be reduced to the level of your income.

Most people in this position go through a difficult process of trial and error, before realising that they are indeed in financial hardship.

How do I know if I am experiencing financial hardship?

If you are unable to pay for your bills and essentials each month, then you may be experiencing financial hardship. Tell-tale signs, on a sliding scale, can include paying bills late (which lowers your credit score), borrowing money from family and friends, accessing buy-now-pay-later schemes, maxing out credit cards and applying for personal or payday loans.

The roots of financial distress can often be traced back to illness or injury, involving unforeseen medical bills. Other causes include a lack of, or change in, income as a result of becoming unemployed or having reduced hours; and unexpected costs owing to natural disasters, such as flooding. Divorce and the death of a partner, including the associated burden of bereavement, are other common reasons.

How can I manage my finances if I’m experiencing financial hardship?

As with any difficult situation, the sooner you realise you have a problem, the better. By seeking effective help now, you may minimise additional debt, and hopefully improve your financial circumstances.

Free financial counselling is available in Australia. The National Debt Helpline (NDH) can be contacted on 1800 007 007. As well as running the helpline, NDH helps consumers find individual counsellors and organisations near to them, and offers information on what your rights are if you experience financial hardship.


Couple experiencing financial hardship on a phone call.
Source: WAYHOME studio (Shutterstock)

If you find yourself in financial hardship and have credit owing (such as a home loan or credit card), you can call the provider of each to ask for a financial hardship arrangement. Generally speaking, banks prefer when you proactively contact them – and remain in touch with them – about managing such problems. From here, you may be able to negotiate an agreement to defer or reduce payments, restructure loans, change repayments to interest only or waive fees and charges.

If lenders reject your demands or do not respond to them, you can then approach the Australian Financial Complaints Authority (AFCA). AFCA is an independent body that assists in resolving disputes between consumers and credit providers, and it is a free service.

If you have multiple debts, the repayment of secured debts – particularly a home loan – should generally be prioritised over unsecured debts. According to Legal Aid NSW, most debts might then be prioritised as follows: a car loan if the vehicle is necessary for earning income; utilities and council rates; unsecured debts, including personal loans and credit cards; and finally debts to family and friends.

If necessary, making only minimum monthly credit card repayments may make sense in this situation.

You may also be able to contact utilities providers, such as for your energy bill, to arrange ‘bill smoothing’. This is a method where your provider can estimate your annual costs and you elect to pay bills as frequent, predictable amounts – usually on the day after each payday.

It is also a good idea to contact Centrelink, as they offer services to deal with a range of crises, including financial hardship.

Can I access my superannuation if I am in financial hardship?

The concept of tapping into future retirement savings to address shortfalls in the present has become topical because of the measures put in place by the federal government for the COVID-19 early release of superannuation.

This allowed eligible Australians and permanent residents of Australia and New Zealand who were adversely affected financially by COVID-19 to access up to $10,000 of their super in the 2019–20 financial year, on a tax-free basis. This offer has been repeated for the 2020–21 financial year, and eligible applicants can apply online through myGov by 31 December 2020.

The early drawdown of funds to address financial hardship is actually an ongoing feature of Australia’s superannuation system.

Criteria for superannuation relief

Separately to the COVID-19 early release of superannuation scheme, Australians can withdraw money from their superannuation if they are experiencing ‘severe financial hardship’. This is defined as being unable to meet reasonable and immediate family living expenses and having received government income support payments (not including ABSTUDY, Austudy or Youth Allowance student payments) from the Department of Human Services (DHS) continuously for at least 26 weeks.

Such living expenses comprise overdue home loan repayments, rental arrears, unpaid bills, vehicle repairs and medical costs. They do not, however, include future credit repayments or paying off debt.

If these prerequisites are met and you have not yet reached your preservation age for accessing super (which is currently between 55 and 60, depending on when you were born), you can call your superannuation fund. They will require you to provide them with a letter of financial hardship from Centrelink to prove that you have been (and still are) receiving income support for the required length of time.

If your application is successful, between $1,000 and $10,000 of your superannuation can be released once in any given 12-month period.

If you are under 60, these funds get taxed as a super lump sum – usually at between 17–22%. For example, if you access $10,000, typically, a net amount of $7,800 will hit your bank account. Depending on the level of your income over the financial year, you may get some of this tax back with your next tax return.

Your financial future

With some help, there are ways to get out of financial hardship. By planning ahead and, not least, addressing any underlying causes of your original hardship, you can establish ways to keep yourself out of further debt and work towards a better financial future.

By doing so, one day, you may be able to look back on this as your financial turning point – including ensuring, over time, that you are better placed to have ample superannuation for retirement.

This article was reviewed by our Sub Editor Jacqueline Belesky and Senior Finance Journalist Shay Waraker before it was published as part of our fact-checking process.

David Rankin

David Rankin is founder of the personal budgeting service Sort My Money. He has 15 years’ professional financial experience, including as a bank manager and small business specialist. He is also a financial author, host of the Sort My Money Podcast and has appeared numerous times on Channel 9’s Today show. You can find him on LinkedIn.


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