Evaluating Consolidation Loans as a Debt Management Strategy: A Mixed-Methods Study of Household Indebtedness in South Africa

Abstract

Household over-indebtedness has become a defining feature of South Africa’s financial system, with debt-to-income levels at 62.5% and household debt-to-GDP at 33.7% by the end of 2024. Unsecured credit, now exceeding R626 billion, reflects growing reliance on debt for survival rather than asset accumulation. In this context, consolidation loans have been aggressively marketed by major banks as instruments of financial relief, yet their long-term value remains questionable. This study critically examines the role of consolidation loans in addressing household indebtedness, particularly for the middle class. Using a mixed-methods design, it reviews literature and policy reports, conducts interviews with 50 loan applicants and 10 financial consultants, and analyses loan marketing materials. Findings reveal that consolidation loans often exacerbate vulnerability by extending repayment periods, concealing costs, and compounding interest, rather than resolving debt distress. Limited debt literacy further exposes households to financial risks, with consumers spending between 62% and 77% of income on debt repayments and collectively paying R384 billion annually in interest. The study argues that consolidation lending deepens household fragility and reinforces dependency on costly credit. Policy reforms, greater transparency, financial literacy initiatives, and wider social interventions are essential for fostering sustainable debt management and protecting vulnerable households.