What is the U.S. National Debt, and How Is It Paid?

America’s debt has surged past $36.2 trillion exceeding the combined GDP of China, Japan, Germany, the U.K., and India. That’s over $106,000 per citizen. With debt levels this high, every taxpayer is exposed to rising interest costs, inflation risks, and tighter federal budgets.

This year alone, Washington will spend $684 billion just on interest 16 cents of every federal dollar. To stay afloat, the Treasury rolls over old debt into new bonds, relying on weekly auctions and investor demand to keep the system running.

In May 2025, Moody’s downgraded America’s credit rating, stripping its final AAA status. The agency cited years of unchecked deficits and political gridlock. This marks the third major downgrade after S&P and Fitch signaling deep concern over fiscal discipline.

With trillions in Treasuries maturing in 2026, investor confidence is critical. If demand falters, borrowing costs could spike just as the U.S. faces a “maturity wall” that tests its ability to refinance at scale.

The federal government borrows to bridge the shortfall between tax revenue and spending allowing it to fund programs, services, and infrastructure even when income lags behind expenses.

America’s debt portfolio includes marketable Treasury bonds traded daily by investors, and non-marketable securities held within government accounts. This internal “intragovernmental” debt reflects obligations to programs like Social Security and Medicare, where one agency owes another.

Government debt has ballooned through history from $75 million after the Revolutionary War to $3 billion post Civil War. In modern times, the Great Recession pushed the debt-to-GDP ratio past 100% by 2013, and pandemic stimulus drove it beyond 120%, marking a new era of fiscal expansion.

Unlike households that must repay loans or face bankruptcy, the federal government can roll debt forward indefinitely. With the power to raise taxes and expand the money supply via the Federal Reserve, Washington sustains borrowing through Treasury bonds widely viewed as near “risk-free” by global investors.

The U.S. Treasury operates like a massive bond fund using tax revenue to pay interest, then issuing new Treasury securities to replace maturing ones. Weekly auctions bring in fresh capital from investors, allowing the government to fund spending without defaulting or repaying principal.

Foreign investors currently hold around $9 trillion in U.S. debt, with Japan leading at $1.13 trillion, followed by the U.K. and China. Meanwhile, domestic pension funds and mutual funds continue to expand their share, reinforcing demand for Treasury bonds across global and local markets.

Despite rising debt levels, Congress has lifted the debt ceiling 78 times since 1960 often relying on “extraordinary measures” to avoid default. These temporary fixes allow continued borrowing but delay structural reform, keeping fiscal pressure on future administrations.

Attempts to shrink the debt have repeatedly stalled due to political gridlock, flawed projections, and short-term policy incentives. Elon Musk’s Department of Government Efficiency (DOGE) once claimed $160 billion in savings, but analysts say it merely deferred costs ultimately adding billions to taxpayer liabilities.

Looking ahead, net interest payments are projected to hit $1.8 trillion annually by 2035. President Trump’s “Big, Beautiful Bill” budget proposal could add over $3 trillion to the debt in ten years, with additional tax cuts potentially increasing the burden by another $3.8 trillion.

The U.S. doesn’t eliminate its national debt it manages it. Stability depends on investor trust, a flexible debt ceiling, and steady economic growth to keep borrowing sustainable.

Recent credit downgrades and rising interest costs signal growing fiscal risks. Yet the scale of Treasury markets and America’s global financial influence still give policymakers room to maneuver if they act decisively.