Funds hard to access early
Its not easy to access KiwiSaver early, writes SHELLEY HANNA
Ibought my first home eight years years ago and joined KiwiSaver the following year, so I didn’t get the chance to make a First Home withdrawal. My mortgage is $280k. I have a big credit card debt from an overseas holiday and I am paying off my car. Can I use my KiwiSaver to pay some of my mortgage? This will reduce my repayments and help me pay off my credit card and car loan faster. My KiwiSaver balance is $26,270.
The main purpose of KiwiSaver is saving for retirement and it is not easy to get money out of KiwiSaver before the ‘end payment date’ which for most people is age 65.
As you point out, you bought your home before you joined KiwiSaver, so a First Home Withdrawal is not an option for you. If your debts are putting you into a situation of extreme hardship — for example if you are unable to meet minimum living expenses or at risk of a mortgagee sale — then you can consider a Significant Financial Hardship withdrawal.
This is an application to the KiwiSaver trustee to make a withdrawal to alleviate hardship./ They only allow this in cases of extreme hardship, and not just for debt repayments.
You must prove that you have explored other options in your application. KiwiSaver isn’t meant as an emergency fund to dip into because of poor spending decisions.
It sounds like your credit card is causing you problems. The interest rate charged by most credit cards is very expensive at around 20 per cent. For someone with a low balance the interest may not look onerous, but on a balance of say $8000 you will be paying over $130 a month in interest (or $1600 per year). If you don’t pay your card off in full by the due date, you will be charged interest on any further spending you make from the date of purchase. You will also incur penalties if you go over your approved credit limit or don’t pay the minimum payment amount by the due date.
Because credit cards are so convenient and widely accepted even by small retailers, far too many people get into a financial mess with them. Some signs that a person’s credit card spending is out of control include: missing the minimal monthly payment, leaving the statements unopened when they arrive in the mail, and making a cash advance from one card to pay the minimum amount due on another. Anyone having trouble with their credit card should consider cutting it up and using an eftpos card or cash instead.
You have another option and that is refinancing with your bank. If you have enough equity in your home you could restructure your mortgage to include your credit card debt and car loan — this will reduce your interest rate and repayments. If this is not possible, look out for a deal from one of the major banks offering new customers who transfer their existing balance a period of low interest. There are some fishhooks to look out for, such as a transfer fee of up to 3 per cent. Financial research company CANSTAR has useful information entitled ‘Balance Transfers — Tricks and Traps’ on their website.
Are you pleased to see how well KiwiSaver has worked for you — building up a retirement savings account with small amounts each payday? Use a similar strategy and start an emergency savings account for unexpected expenses. Once you have $1000 set aside start another savings account for big-ticket items like home improvements, family wedding or car upgrade. Achieving this will give you pride in your money management skills as well as a great sense of financial freedom.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 06 870 3838 or go to peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz
KiwiSaver isn’t meant as an emergency fund to dip into because of poor spending decisions.