Government debt is the total amount of money a national government owes to its creditors. In the United States, that figure currently stands at roughly $39 trillion, split between debt held by the public ($31.43 trillion) and debt the government owes to its own agencies ($7.63 trillion). It accumulates over decades as a government consistently spends more than it collects in revenue, borrowing the difference each year.
How Governments Borrow Money
When a government needs to cover a shortfall between what it collects in taxes and what it spends, it borrows by issuing securities. In the U.S., the Treasury Department sells these through regular auctions. Buyers are essentially lending money to the government in exchange for a promise to be repaid with interest on a set schedule.
Treasury securities come in several forms. Treasury bills mature in a year or less, Treasury notes mature in two to ten years, and Treasury bonds mature in 20 or 30 years. Shorter maturities typically pay lower interest rates, while longer ones pay more to compensate the lender for tying up their money. The Treasury’s stated goal is to finance the government at the lowest cost over time, which means it adjusts the mix of short and long-term borrowing based on market conditions.
There are also non-marketable securities, like the Series I and EE savings bonds individuals can buy directly. These can’t be resold on the open market, unlike the marketable securities that trade freely among investors worldwide.
Deficit vs. Debt
These two terms get used interchangeably, but they describe different things. The deficit is a single year’s shortfall: the gap between what the government spends and what it collects in that fiscal year. If the government spends $6.5 trillion but only brings in $5 trillion in revenue, the deficit for that year is $1.5 trillion.
The debt is the running total of all those annual deficits (minus any surpluses) accumulated over the country’s entire history. Think of the deficit as a monthly credit card bill and the debt as the outstanding balance. A government can shrink its annual deficit and still see the total debt grow, because the debt only decreases when the government runs a surplus and uses it to pay down principal.
Who Holds Government Debt
The national debt breaks into two major categories. The larger portion, about $31.43 trillion, is debt held by the public. This includes individual investors, mutual funds, pension funds, insurance companies, foreign governments, and central banks. Anyone who buys a Treasury security at auction or on the secondary market is part of this group. Foreign holders, including governments like Japan and China and their central banks, own a significant share of this category.
The smaller portion, about $7.63 trillion, is intragovernmental holdings. This is money the government essentially owes to itself. Federal agencies that collect more revenue than they immediately need, like Social Security, invest their surplus in Treasury securities. The Social Security Administration is the single largest holder in this category. As Social Security’s surplus revenue has slowed in recent years, growth in intragovernmental holdings has also slowed.
What It Costs to Carry the Debt
Borrowing isn’t free. The government pays interest to everyone holding its securities, and that bill has grown substantially. Net interest costs hit $970 billion in 2025 and are projected to cross $1 trillion in 2026. To put that in perspective, interest payments now consume about 3.3% of the entire U.S. economy (GDP), and the Congressional Budget Office projects that share will rise to 4.6% by 2036.
That interest spending competes directly with everything else in the federal budget. Every dollar spent on interest is a dollar unavailable for defense, infrastructure, healthcare, or any other priority. When interest rates rise, as they did sharply starting in 2022, the cost of servicing existing debt climbs too, because maturing securities get refinanced at higher rates.
Why Governments Carry Debt at All
Governments borrow for many of the same reasons households and businesses do: to fund investments they can’t pay for out of current income, and to smooth out uneven cash flows. Building a highway system, responding to a pandemic, or fighting a war can require spending far beyond what taxes generate in a given year. Borrowing spreads that cost across future years.
Some level of government debt also plays a structural role in financial markets. Treasury securities are considered among the safest investments in the world, which makes them a benchmark for interest rates across the economy. Banks, pension funds, and foreign central banks rely on Treasuries as a safe store of value and as collateral in financial transactions. If the U.S. government paid off all its debt tomorrow, it would actually create problems for global financial plumbing that depends on a liquid supply of safe assets.
When Debt Becomes a Concern
Economists generally don’t point to a single dollar figure where debt becomes dangerous. Instead, they watch the ratio of debt to GDP, which measures how large the debt is relative to the country’s ability to generate income. A country with a $30 trillion debt and a $30 trillion economy is in a very different position than one with a $30 trillion debt and a $10 trillion economy.
The concern grows when interest payments start crowding out other spending, when investors begin demanding higher interest rates to compensate for perceived risk, or when a country’s debt grows faster than its economy for an extended period. In the U.S., the trajectory of rising interest costs from 3.3% of GDP toward 4.6% over the next decade is the kind of trend that makes fiscal analysts uneasy. It suggests the debt is growing faster than the economy, leaving future lawmakers with less flexibility to respond to recessions, emergencies, or new priorities.
For the average person, government debt matters because it shapes tax policy, interest rates, and the government’s ability to fund programs like Social Security and Medicare over the long term. The debt itself isn’t inherently good or bad. What matters is whether the borrowing funds productive investments, whether interest costs remain manageable, and whether the economy grows fast enough to keep the debt-to-GDP ratio from spiraling upward indefinitely.