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Date Published : Wednesday, August 06, 2008
With household budgets being squeezed by rising credit card debt, increased home loan rates and higher living costs, many Australians are facing their own personal credit crunch.
Many of those bearing the brunt of things like more expensive home loans, rents, food and fuel are at the lower end of the income scale - but according to the Sydney Morning Herald, the crunch is also starting to stretch people on relatively high incomes.
David Tennant of the Canberra-based Care Inc Financial Counselling Service, told the publication that even in the most affluent city in the country, households are feeling the pinch.
"I have never seen the depth and breadth of financial difficulty that is obviously being felt in the community," he said.
Mr Tennant added that around 20 per cent of those now contacting the "crisis service" are people with moderate incomes and mortgages.
Recent research by Fujitsu Consulting found that cases of severe mortgage stress among "exclusive professionals" - defined as high income earners who are considered financially astute - have risen more than six-fold among this group since September 2007, the site said.
At the same time, personal debt on credit cards has continued to rise as the credit market has become more liberalised.
Catriona Lowe of the Consumer Action Law Centre said rather than consumers having to pursue credit, they were now sold it through pre-approved offers.
"We have a bit of a 'super-size me' attitude to credit," she said.
To manage debt, consumers may be able to transfer their current balance to a lower-rate or zero interest credit card. This can be a sensible move, experts say, as long as they cut up their old cards and do not continue adding to the debt.
The same principle applies to people who take out a debt consolidation loan. This option allows borrowers to fold their current liabilities into a single personal loan or mortgage, which can cut short-term interest repayments.
However, consumers may pay more in compound interest over the long-term with this option and those who use a mortgage to consolidate debt will have it secured against their home.
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