Australians are experiencing their own personal credit crunch and the impact is being felt well outside the low-income suburbs where people have always battled to pay the bills, let alone service a mortgage.

On one side of the tightening squeeze are rising home loan rates and rents and overwhelming credit card debt; on the other side are food inflation and the rising cost of petrol, not to mention declining investment wealth and the burden of private school fees.

Financial counsellors and credit industry analysts say that, as a result, people in relatively high-income suburbs such as Bondi and Woollahra in Sydney and St Kilda and Albert Park in Melbourne have joined those feeling the squeeze.

"We are seeing middle-class people, people on reasonable incomes - $100,000 a year," says Jan Pentland, a Victorian financial counsellor who chairs the Australian Financial Counselling and Credit Reform Association.

In Australia's most affluent city, Canberra, David Tennant, the director of the Care Inc Financial Counselling Service, says: "I have never seen the depth and breadth of financial difficulty that is obviously being felt in the community. There are entirely new groups of clients who are making contact with agencies like this one."

In its 2005-06 annual report, Care Inc noted with concern that people with incomes of more than $45,000 now accounted for 10 per cent of its clients. "It was a big deal when it hit double figures," Tennant says. In 2006-07, the figure was 15 per cent.

"Now, one in five people ... making contact with what is essentially a crisis service are reporting incomes that are not really very low," Tennant says. "They're in that moderate income category, in the mortgage belt in one of the wealthiest cities in one of the wealthiest countries in the world."

Fujitsu Consulting's mortgage stress research divides the home loans market into 11 categories, such as "suburban mainstream". Its latest report finds rising stress among "exclusive professionals" - high-income earners who, according to its definition, can be considered financially astute.

Among this group, those in "severe" stress - to the point where they're talking about refinancing or even selling their homes - has multiplied more than sixfold since September last year. That compares with a fivefold increase in the overall number of people considered to be experiencing severe stress.

"Exclusive professionals live in places like Bondi and Woollahra - places you just wouldn't imagine," says Martin North, the managing consulting director of Fujitsu Consulting Australia and New Zealand.

"A lot of these people have big mortgages, a stock portfolio, private school fees, margin loans. Some of these groups are also experiencing significant issues because they're not getting income from their stocks, they've had margin calls [and] the cost of living is rising."

It's a similar story for "young affluents", where the number of households in severe stress has quadrupled since September.

Of course, the group feeling the most pain, by far, is the segment Fujitsu defines as the "disadvantaged fringe", along with an increasing number of "young, growing families" - people Tennant fears may be "crowded out" of access to support services.

Catriona Lowe, the joint chief executive of the Consumer Action Law Centre in Victoria, says relaxation of lending standards - whether for home loans or credit cards - is a major culprit in the difficulties now being experienced.

"There seems to be this general comfort with debt that simply didn't exist historically and we see that manifest in a whole range of ways," Lowe says.

"People might be pulling out the credit card to pay for the groceries because they're trying to get as many points as they can - or because that's the [only] way they can afford to pay for the groceries. It was just unheard of once upon a time to pull out the credit card in that sort of scenario.

"We see people with multiple credit cards, we see people getting into difficulty and receiving offers to increase the limits on their credit cards - 'Here's a pre-approved offer, just tick the boxes and sign at the bottom."'

She says many people have borrowed up to their limit for a home loan but if "they'd sat down and worked out what they actually needed to live on, they may have made a very different decision".

Credit used to be something that a consumer would go out and seek, Lowe says. "Now it's something that's sold to them - and upsold. We have a bit of a 'super-size me' attitude to credit."

That's not to say consumers don't have personal responsibility for their credit troubles "but it's also important to note that so do the people who are doing the lending - there's definitely two sides of the coin", Lowe says.

So what should people do if the sort of "tight" spot we all experience from time to time turns into two, three or more months of financial pressure?

The first steps should be to seek help and talk to your lenders, counsellors say.

But don't accept any solution at face value - particularly the quick and easy ones being offered by someone who will make money from them. "What can appear the sensible solution really needs to be very, very carefully managed and researched to make sure it is the right solution," Lowe says.

Seek help

A recent survey conducted for credit information provider Veda Advantage found that 16 per cent of people were finding it difficult to meet repayments, yet only one in five of them had sought help.

Pentland says people should act sooner rather than later. "As soon as they're in the position where they're getting over-the-limit fees or late-payment fees - or they're at risk of getting them - then it's worth having a talk to the lender," she says.

Contact the lender's call centre and ask to speak to the team that specifically deals with financial hardship. "You'll get a more sympathetic and useful hearing from them" than from general call centre staff, she says.

Mainstream lenders such as banks, credit unions and building societies operate under codes of practice that require them to put hardship programs in place. In addition, the Uniform Consumer Credit Code legally obliges lenders to make a "hardship variation" to a loan in certain legally defined circumstances.

If the lender doesn't respond appropriately, there's redress under the code of practice or credit code.

A spokesman for credit card provider American Express says: "The sooner we can discuss a card member's problems, the more likely it is we'll help them find a solution For example, we can freeze interest, payments or fees, depending on the card member's needs, to give them some time to get back on their feet.

"We may also freeze the credit limit and reduce it every time a payment is made to ensure the card member can't get further into debt."

Lowe says people should also seek independent advice - advice not tied to commission payments or that generates fees and charges.

Apart from the free counselling services, Veda Advantage spokesman Chris Gration suggests middle- to high-income earners may have access to advice from an accountant or financial planner - though Tennant cautions they may not have specialist expertise when it comes to hardship.

Lowe says groups such as hers give legal as well as financial advice and sometimes people have rights they're unaware of. For instance, if a lender didn't properly assess their capacity to pay, they may be entitled to some relief.

Don't add to the debt

Counsellors are unanimous in saying the biggest mistake people can make is to try to borrow their way out of trouble.

Veda Advantage is completing a survey of people either considering bankruptcy or going through the process. Gration says one finding is that about 90 per cent of those people - desperate to find a solution - have sought further credit.

"I've seen the encouragement of 'churn' in the credit market building over 10 years, with the consequence in the vast majority of cases being that people end up owing more as they go through that process," Tennant says.

"We've got to a point in this country where there's simply too much debt being carried by people who can't afford it. Even more debt is not the solution."

One scenario involves obtaining a new credit card, with the offer of a lower rate or even zero interest on the balance transferred from your old cards. That can make sense but in counsellors' experience people neglect to cut up their old cards, use them again and end up even deeper in debt.

Even if the cards are destroyed, lenders may tempt people with new offers. "These are customers who have paid their debt, so they will be offered credit again," Pentland says. "They need to be really disciplined and not take those offers."

Consolidation

The same problem occurs when credit card debt is rolled into a personal loan or mortgage but the cards aren't cut up.

Consolidating your credit card or other personal debt into your mortgage has the advantage of bringing down the interest rate you're paying - perhaps from about 20 per cent on a card to about 9 per cent on the mortgage.

But advisers say there are two other considerations.

First, debt which you would have paid off over a much shorter term is now spread over 20 or 30 years. Even at the lower rate, you can be worse off because of the compound interest over the longer term.

The second consideration is that you can't lose your house over credit card debt, because it's not secured against property - but roll that debt into your mortgage and suddenly it's secured against your home.

If consolidation proves to be only a short-term solution and you really can't meet your obligations, you could default on your home loan and be forced to sell.

Refinancing

Again, refinancing your mortgage can make sense in the right circumstances and if you do your homework - and if you can obtain a new loan as financial institutions tighten their lending criteria.

For example, it may make sense for some people to switch from a "premium" home loan package with all the bells and whistles to a basic home loan with fewer features but a much lower interest rate.

It's essential you do your research. According to InfoChoice data, AMO Home Loans has the cheapest basic loan at 7.97 per cent. But leave in the first two years - not an impossibility if you're still struggling - and you'll be up for an exit fee of 1.2 per cent. On $150,000, that's a penalty of $1800.

Among the big five banks, ANZ tops the list with a basic loan rate of 8.92 per cent for borrowings of $150,000, though NAB would pull ahead by a nose on a loan of $250,000. And, of course, you may be up for an exit fee on your existing loan that wipes out any benefit of refinancing.

Lowe says some of the "most awful" cases her organisation sees involve multiple refinancings.

"Someone may have started out with a mainstream lender, got into trouble, and they're onto their third or fourth or fifth refinancing [with a fringe lender] by the time we see them. When the first refinancing happened they may have had potentially $100,000 more equity in the property but that's been stripped away over the next three or four or five loans through a combination of fees and various other charges.

"At the point where the consumer sees us, there's virtually nothing left. If they'd made what is clearly a very hard decision earlier [to sell], at least they would have something left with to start again."

In some cases people are left with worse than nothing, after their home sells at a price insufficient to discharge the debt completely.

Access to super

Another option that some people have been using is getting access to their super. This is extremely difficult to do but $175 million was released from super on hardship grounds in 2007, more than double the $77 million released in 2005.

A member can go directly to the fund to ask for super to be released on the grounds of "severe financial hardship" but only if they've been receiving government income support for at least 26 weeks and they are unable to meet "reasonable and immediate" living expenses.

Alternatively, they can apply to the Australian Prudential Regulation Authority for the release of super on "compassionate grounds" to meet mortgage payments if they're under threat of foreclosure.

If such access "is genuinely going to make a difference in the long term to a consumer keeping their home, then it can be a good option," Lowe says. However, all too often her office finds consumers aren't getting enough of their super or getting it in circumstances where the home can't be saved - "then of course what they've done is further reduced their assets," she says.

More help

The website of the financial counsellors' peak body lists counselling services around the country; see http://www.afccra.org /counselling.htm. If you're considering refinancing, do your sums with the "multi-loan" calculator from the Australian Competition and Consumer Commission; see http://www.fido.gov.au.

Financial help for a struggling artist

Painter Stacy Kershaw was tired of living up to the stereotype of struggling artist when she and her husband decided last year they needed to do something about their two mortgages and three credit cards.

The bank had already upped the rate on their variable-rate home loans a couple of times independently of the Reserve Bank and - like everyone - she was noticing the difference when she filled up the car and paid for the groceries.

"I was pretty much struggling financially," she says of her situation in the past couple of years.

"I was picking up odd jobs, basically living off my husband's wage and supplementing that with credit cards."

The couple had secured a mortgage to build their home, then another loan to finish it off.

"We ended up with two separate payments to make and it was quite a hefty amount to find every month," she says.

Their original mortgage came with a credit card and they kept the one they already had. "Then we also got a separate card with another bank that was offering a pretty low rate," Kershaw says.

The cards were "pretty much maxed out" by the time the idea of refinancing came up.

Today they have a single mortgage at 8.74 per cent, compared with 8.97 per cent and 9.22 per cent on their previous two loans, and the credit card debt has been consolidated into that loan.

Instead of making five different payments a month on loans and cards, they're making one. The net result is that there's about $540 a month back in the household budget.

A credit card attached to the new loan is paid off monthly.

Catch-22 on mortgage

Property investor Dawn Burke (pictured) investigated refinancing her two mortgages only to find, in her words, there was "little or no point".

Having watched the rate on her bank loan go up independently of the Reserve Bank's rises, she spoke to her other lender, a credit union, but was told its rates were also about to rise because of the global credit crisis. She also discovered there was a $700 exit penalty on her two-year-old bank loan.

She considered putting $20,000 onto the bank loan then having the loan rewritten over the same period but concluded that in the long term she'd be no better off because the smaller amount would be paid off over a longer period than otherwise - costing more in total interest.

"If I do this, it takes longer to pay [that sum] off - unless I maintain the payments I currently make, which are creating quite a headache for me. A catch-22 situation if I ever had one."

Burke, a Sydney facilitator for RadPad, which markets eco-friendly women's products, says she has also been hurt by the rise in the local dollar, which is eroding returns from an Auckland investment unit.

BEST RATE BASIC HL Rates (%) Fees ($)                                           
Institution             Variable        True rate       Applicat.       Deferred establishment fee
AMO                     7.97    8.08    1000    Yrs 1-2: 1.2%, yr3: 1%, yr4: 0.8%, yr5: 0.6%
Wizard HL               8.13    8.19    760     Yrs 1: 1.5%, yr2: 1.2%, yr 3: 0.9%, yr4: 0.6%
Victoria Teachers CU    8.47    8.52    600     Yrs 1-5: 1x monthly repayment
Illawarra CU*           8.57    8.73    600     $200
Community CPS Aust#     8.6     8.75    495     NA
BIG 5 BASIC HL Rates (%) Fees ($)                                                               
Institution             Variable        True rate       Applicat.       Deferred establishment fee
ANZ                     8.92    8.97    500     $700, if within 4 years
Commonwealth Bank       9.07    9.2     NIL**   $700, if within 4 years
NAB                     8.95^   9       600     $900, if within 4 years
St George                       8.95    9,.00   500     $1000, if within 3 years
Westpac>>               9.03    9.18    600     $700, if within 4 years
BASED ON LOAN AMOUNT OF $150,000 OVER 25 YEARS 
*ANNUAL FEE OF $96 # ANNUAL FEE OF $132 
**SPECIAL OFFER ESTBL. FEE NORMALLY $600 + $96 PA SERVICE FEE                                   
^BORROWINGS 
>$250,000 WILL REDUCE THE HEADLINE RATE BY 5 BASIS POINTS 
>> ANNUAL FEE OF $120                                           
SOURCE: INFOCHOICE