When government spending exceeds the revenue that comes in from taxes, a budget deficit results. To cover this deficit, the United States borrows money.
Borrowing takes the form of securities the U.S. sells to investors. Those securities include Treasury bonds, bills, notes, floating rate notes, and Treasury inflation-protected securities, or TIPS. In return, the U.S. government promises to repay the principal, along with interest.
The national debt is the accumulation of the securities it sells, plus interest owed to investors.
That debt falls into two broad categories: debt held by the public, which is money the government owes to outside investors; and intragovernmental debt, which is money the government owes to its own accounts and trust funds, such as Social Security.
Breaking Down U.S. Debt
At $40 trillion, the national debt works out to about $117,000 per American based on current population figures from the U.S. Census.
That debt has doubled in the last 10 years due to pandemic spending, funding entitlement programs, and rising interest payments.
The government pays an average interest rate of about 3.35% on its marketable debt. That translates to more than $1 trillion a year in interest payments, making interest the third-largest federal budget expense, behind Social Security and Medicare.
As a share of the economy, debt stood at about 123% of gross domestic product in the first quarter of 2026. Comparing a country's debt to GDP is a good way to gauge its ability to pay down its debt. A number above 100% doesn't mean a country is in immediate threat of default, but the higher it gets, the more red flags it raises.
National debt is common. In fact, the U.S. has been debt-free just once in its entire history, back in 1835 under President Andrew Jackson. As the nation's debt has ballooned, however, concerns are growing over the federal government's ability to pay back what it owes and fund future programs.
Who Owns Government Debt?
Much of the nation's debt is held by U.S. investors and institutions. These include mutual funds, pension funds, banks and individual households that own Treasury securities either directly or through investment funds.
Foreign governments and institutions also hold a significant amount of U.S. debt. Japan and China have historically been among the largest foreign holders of Treasurys.
The Federal Reserve is another major debt holder. It buys and sells Treasurys as part of its monetary policy, using those transactions to influence interest rates and financial conditions.
Why Government Debt Is Growing
Several factors are driving the government's current debt trajectory, including spending on Social Security and Medicare, rising interest costs, and tax policies that reduce revenue.
Large, unexpected expenses can also cause the debt to jump. Recessions, wars and public health emergencies have all led to sharp increases in federal borrowing. During the pandemic, for example, the government added roughly $4.2 trillion to the debt in fiscal year 2020.
The Debt Ceiling
The debt ceiling is a legal limit on how much the federal government can borrow. When borrowing hits that ceiling and the government can't borrow any more money, it risks defaulting on its debt.
Two things may happen to prevent a default and avoid a financial crisis. The treasury can use cash on hand and "extraordinary" accounting measures to continue paying its bills. Congress then has to hold a vote to raise the debt ceiling.
Lawmakers have raised the debt ceiling 78 times since 1960, and the U.S. has never defaulted on its debt, but the decision to do so often sparks a fierce political fight.
The current debt ceiling is $41.1 trillion. The Bipartisan Policy Center projects that the U.S. government will most likely hit it between late winter and mid-summer 2027.
How Government Debt Affects You
Government borrowing can affect your finances in several ways. As the government issues more Treasury securities, their supply increases. That can put upward pressure on Treasury yields, which can raise borrowing costs throughout the economy. For consumers, that can translate to higher rates on mortgages and other loans.
The government's growing interest commitment also impacts the federal budget. Money used to pay interest on the debt can't be spent on other priorities unless the government raises additional revenue or borrows more.
Treasury yields can have an upside for savers, however. When the government offers higher rates to attract investors, individuals can potentially earn more by holding Treasury bills and notes. You can buy Treasury bills, notes, and bonds directly through TreasuryDirect.gov.
Series I savings bonds are another way you can participate in the government's borrowing program. Their interest rate is partly tied to inflation, and the Treasury set the I bond composite rate at 4.26% in May 2026.
If you want to keep an eye on the national debt yourself, the Treasury's Debt to the Penny data is updated every business day.
