Using a hardship application or KiwiSaver withdrawal to pay back debt
Think of debt like a beautifully kept car, with regular cleaning and maintenance it’ll remain shiny, reliable and functioning. But with a few months or years of neglect, it’ll become messy and at risk of a breakdown.
Sometimes debt is due to a terrible change in circumstances, like a partner dying, personal illness, divorce, mental health problems or redundancy.
Whatever the reason, you don’t need to struggle alone with your debt worries.
Spiralling debt doesn’t have to result in bankruptcy. You can make a hardship application to any one of the organisations you owe money to or you can request a hardship withdrawal of your KiwiSaver funds. However, do think about the long-term implication of doing that and take advice first.
Debtfix can help you explore these options, explain how they work and who may be eligible.
What is a hardship application?
A hardship application is a request to change the terms of your loan agreement due to unexpected financial hardship.
An application for hardship must be made in writing to the organisation you owe money to and you must explain the reasons for your unforeseen hardship.
You must provide evidence and details of the changes that you want made to the contract.
Changes to your contract may include a payment holiday, a longer period to pay, or freezing of interest and penalties.
It is important you contact your lender sooner rather than later because you have a limited time to make a hardship application.
It is also important to note that while a hardship application will provide temporary relief, it is likely to increase the total amount owing on a loan in the long run.
Click here to find out how your contract can be changed and who is eligible to make a hardship application.
What happens if my financial situation changes once a hardship application is provided?
It’s important that you need to advise your lender as soon as possible so that they can review your situation and ensure the appropriate assistance is in place.
How to withdraw funds from KiwiSaver in significant financial hardship
KiwiSaver is designed as a long-term investment however, if you have evidence that you're suffering significant financial hardship, you may be able to withdraw money from your KiwiSaver fund.
Examples of significant financial hardship includes if you're:
Unable to meet minimum living expenses.
Unable to meet mortgage repayments on the home you live in, resulting in your mortgage provider enforcing the mortgage on your property.
Modifying your home to meet special needs because you or a dependent family member has a disability.
Paying for medical treatment if you or a dependent family member:
becomes ill,
has an injury, or
requires palliative care
Suffering from a serious illness.
Incurring funeral costs if a dependent family member dies.
Every application is reviewed on an individual basis.
What classes as significant financial hardship may vary between each KiwiSaver provider as they all have their own individual terms and conditions.
To apply, you need to submit a budget report and a supporting letter stating how withdrawing your savings would help your situation. The Debtfix team can help guide you through this process.
KiwiSaver providers usually respond with a decision within 10 working days.
Is it worth withdrawing money from your KiwiSaver?
A staggering 50 per cent of New Zealanders do not have a will.
Even if you have personal debt, it’s crucial you make a will to protect your family.
If you die without a will, all your assets do not automatically go to your family. The government use a formula to divide up the assets.
You can get information about preparing a will here or contact a lawyer to draw one up for you.