What the National Debt Means for You

The national debt is easier to understand than you think, and it impacts us all in many different ways.

Written by Lindsay VanSomeren / June 29, 2022

Quick Bites

  • The national debt is a result of the government spending more than it takes in with taxes, fees, leases and other income.
  • As long as the federal government is able to pay the interest on its debt, the size of the national debt doesn't matter as much as you might think.
  • The debt-to-GDP ratio indicates that the national debt is unsustainable when it keeps increasing over the long run.
  • Unhealthy debt levels can cause inflation, taxes and higher interest rates—and government spending to go down.

Listening to cable news personalities argue about the national debt is almost as American as apple pie. Depending on who you believe, the country is either headed toward a crisis or toward even greater prosperity. There's so much contradictory information that it's hard to know who to believe, or even what the national debt is in the first place.

The good news is you don't need to be a macroeconomics major to understand it. Just like how you might spend more than you earn and be in debt, so too can the government. But a government is not a person, and so being in debt works a little differently for the U.S. That spirals out to impact you in many different ways as well, so it pays to understand what the national debt is and how it works.

Inside this article

  1. What is the national debt?
  2. How much is the national debt?
  3. What's a healthy national debt?
  4. When the debt is too high...
  5. Frequently asked questions

What is the national debt?

The national debt is how much money the government owes to creditors like companies, other countries and even you and me.

The basics of how the national debt works for the country is roughly the same as how debt works for you as an individual. The government earns income in the form of taxes. It uses that money to do things like fund the military and make Social Security payments.

And just like how you sometimes spend more than you earn (which requires you to take out debt), so too does the government spend more than it earns each year in taxes. When that happens (and it's always happening), it takes on debt by issuing Treasury Notes, or T-Bills as they're sometimes called. Anyone can buy T-Bills (including you), and when you do, you're essentially giving the government a loan that they'll pay back later with interest.

Here's where things differ further. As a person, it's better for you to be debt-free and not spend more than you earn. But a government doesn't necessarily need to worry about those things—up to a point.

"A human household has a finite lifespan, so spending more than you earn and accumulating [debt] means that you may never be able to pay it back," says Orphe Divounguy, chief economist at the Illinois Policy Institute. "The fact that a government has an indefinite planning horizon means that it can refinance its debt indefinitely."

Headshot of economist Orphe Divounguy

Meet the Expert

Divounguy earned a doctorate in economics from England’s University of Southampton. His work has appeared in national publications including The Wall Street Journal and CNN Business.

However, that doesn't mean a government has a free license to borrow unlimited amounts of money forever. At some point it can get to be too much. Exactly where that point is isn't always clear or agreed upon, and that's part of the trouble of the debt getting too high.

How much is the national debt?

The national debt was about $30 trillion in May 2020[1]. You can find out what it is at any given time by visiting the U.S. Treasury Department's Debt to the Penny website, which updates this number daily.

For a more visual (and somewhat dizzying) representation, check out the U.S. Debt Clock website.

What signals a healthy national debt versus an unhealthy one?

Thirty trillion dollars is such a large amount that it's hard to even wrap your head around how big it is. But since the government doesn't necessarily need to worry about becoming debt-free like ordinary citizens do, how much is too much?

When it comes to paying its debt, the government is primarily concerned with whether it can pay the interest it owes on its debts. As long as it can pay the interest, it can even continue to increase the debt level, and that's why the national debt keeps increasing.

In fact, a manageable amount of debt is healthy because that means the government can provide its citizens with a better quality of life. If the government only spent as much as it took in each year, our world would not look like it does today. We wouldn't have nearly as many social support services, educational opportunities or as much safety as we do now.

But at some point, the government might start having problems making these minimum payments. When it gets near this point, things start getting dicey.

Expert opinions on what a sustainable amount of national debt is varies. But rather than focusing on the dollar-and-cents figure, most economists hone in on another number entirely: the debt-to-GDP ratio. After all, this measures how much debt the country has relative to its gross domestic product (GDP).

When a country's debt-to-GDP ratio is on the upward swing, that's when economists generally consider it an unsustainable level.[2] Using this logic, the U.S. debt levels have been unsustainable since 2001 (more on this later).

How has the national debt changed over time?

Economists consider us to be at an unsustainable level of debt today, but it hasn't always been that way. Economic challenges and shifting management styles over the past century have caused it to fluctuate significantly.[3]

YearDebt-to-GDP ratioPercent change from previous decade
19006.6% n/a
201060.8% 80%

What happens when the national debt gets too high?

If you've been in debt or had money problems, you know how difficult it can be when you don't have enough money to pay for things you need. You might have to start clipping coupons or dropping some services you enjoy. Your credit score might also decrease. All of that can quickly spiral out of control and affect you in many different ways if you're not careful.

The same thing happens when the national debt gets too high. How high is too high is a matter of debate among policymakers (hence why you see it in the news a lot), but it's generally agreed that when it keeps going up without any reprieve, it's not sustainable.

When the national debt gets too high, the effects radiate out into the economy and affect consumers in all kinds of different ways. Here are some of the ways it can affect you, among others.


When big economic events like pandemics or wars happen, the government sometimes responds by putting out stimulus payments like most Americans saw during the early phase of the pandemic. To do that, the government had to borrow money, and that increased the deficit.

"When the economy is already at or near full employment—like it is [in mid-2022]—then more government spending leads to an increase in the price level of private goods or the interest rate, or both," says Divounguy. "This explains why experts warned back in March 2021 that additional stimulus by the Biden administration could end up causing inflation. Of course, we now have the highest inflation reading in more than 40 years."[4]

Inflation can be—and has been—caused by other factors, too. For example, widespread supply chain shortages we've all been noticing have contributed to inflation. Surges in demand for things like travel and entertainment can also cause inflation.[5]

Taxes might rise

If you're having problems making ends meet, an oft-touted piece of advice is to find ways to boost your income. The government can do that too, but only by increasing taxes. They can choose to raise taxes on everyone, or for specific industries or people.

Cuts to government spending

Aside from earning more, governments can lower the amount of debt by cutting some of their spending. This also means less money for social services like public education, Social Security and Medicare/Medicaid.

Loan rates might rise

The interest rate that you pay on your own personal debt, like credit cards and personal loans, can increase. That can make things especially tough for people looking for very large loans like mortgages, who may now be priced out of buying a home.

Savings rates might rise

On the flipside, along with rising rates on loans, rates are rising on savings accounts and CDs as well. This can make saving money more attractive, but as of June 2022, inflation was still surpassing the rates offered on savings accounts. This means you might be taking two steps forward and three steps back.


Should I care about the national debt?

It's a good idea to keep tabs on the national debt so that you know roughly where the economy stands, and what might be happening in the future. But rather than focusing on the total amount of the national debt (which isn't too helpful), focus more on the debt-to-GDP ratio. This will ultimately tell you whether the debt is sustainable or not, and if not, you might need to buckle up for some bumpy changes down the road.

How can the national debt be a problem?

The national debt can be a problem if a country borrows so much money that it can't afford to make the payments anymore. It can also be a problem because money that a government spends on its debt could instead have gone to improving its citizens’ well-being.

Who owns the U.S. national debt?

Many different groups own the U.S. national debt. Foreign governments hold a good share of it, along with private investors. If you have a treasury bond, then you too own part of the U.S. national debt.

How are national debt and deficit related?

The national deficit is how short a government's account ledger is after it takes in all of its revenue. It's similar to if you run out of money after your payday. The national debt, on the other hand, is how much money the government has borrowed to cover these deficits. It's similar to how much you might have put on your credit card if you didn't have enough money after you get paid.

Article Sources
  1. "Debt to the Penny," U.S. Department of the Treasury, June 24, 2022, https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny.
  2. "Executive Summary to the Fiscal Year 2021 Financial Report of U.S. Government," Bureau of the Fiscal Service, March 31, 2022, https://www.fiscal.treasury.gov/reports-statements/financial-report/unsustainable-fiscal-path.html.
  3. Marcus Lu, “Timeline: 150 Years of U.S. National Debt,” Visual Capitalist, June 21, 2021, https://www.visualcapitalist.com/timeline-150-years-of-u-s-national-debt/.
  4. "Consumer Price Index Summary,” U.S. Bureau of Labor Statistics, June 10, 2022, https://www.bls.gov/news.release/cpi.nr0.htm.
  5. Rouse, Zhang and Tedeschi, “Historical Parallels to Today’s Inflationary Episode,” The White House, July 6, 2021, https://www.whitehouse.gov/cea/written-materials/2021/07/06/historical-parallels-to-todays-inflationary-episode/.

About the Author

Lindsay Vansomeren

Lindsay VanSomeren

Lindsay was inspired to start writing about personal finance after seeing how much good financial management impacted her life in getting out of six-figure debt. Now she hopes to help others improve their finances too, so they can get rid of financial stress, live the lives they want, and strengthen their communities. Her work has appeared in Credit Karma, Forbes Advisor, LendingTree, The Balance, and more.

Full bio

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