The term “national debt” refers to the outstanding financial obligation of a country. The national debt is what the federal government owes its creditors. It’s made up of different types of debt, such as that which is held by the public and federal government trust funds.
The national debt represents the sum of past annual budget deficits reduced by annual budget surpluses. U.S. national debt totaled around $35.8 trillion as of October 2024.
Key Takeaways
The national debt is composed of distinct types of debt, similar to an individual whose debt may consist of a mortgage, car loan, and credit cards. The different types of debt include non-marketable or marketable securities and whether it is debt held by the public or debt held by the government itself (known as intragovernmental).
The U.S. has carried debt since its inception. Debts incurred during the American Revolutionary War amounted to $75 million, primarily borrowed from domestic investors and the French Government for war materials.
The national debt enables the federal government to pay for important programs and services for the American public.
The National Debt Explained
Debt is a financial obligation that one entity owes to another. Individuals, businesses, and governments take on debt to support themselves, make purchases, or invest in future growth. Consumer debt includes credit cards, loans, and mortgages. Corporations can take out debt in the form of lines of credit and corporate loans among other sources. Government debt is known as national debt or as federal or public debt. It’s money borrowed by the government to pay for its expenses. The national debt in the U.S. is primarily held by the public, followed by foreign governments, banks, and investors.
The national debt is the amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time. In a given fiscal year (FY), when spending (ex. money for roadways) exceeds revenue (ex. money from federal income tax), a budget deficit results. To pay for this deficit, the federal government borrows money by selling marketable securities such as Treasury bonds, bills, notes, floating rate notes, and Treasury inflation-protected securities (TIPS). The national debt is the accumulation of this borrowing along with associated interest owed to the investors who purchased these securities. As the federal government experiences reoccurring deficits, which is common, the national debt grows.
Simply put, the national debt is similar to a person using a credit card for purchases and not paying off the full balance each month. The cost of purchases exceeding the amount paid off represents a deficit, while accumulated deficits over time represents a person’s overall debt.
America’s national debt in dollars is generally viewed as less important than its proportion to the country’s gross domestic product (GDP) or the debt-to-GDP ratio because a country’s tax base grows alongside its economy. It increases revenue that the government can raise to service the debt. The U.S. national debt-to-GDP was 120.04% at the close of the second quarter of 2024.
The U.S. Treasury uses the terms “national debt,” “federal debt,” and “public debt” interchangeably.
Funding Programs & Services
The federal government needs to borrow money to pay its bills when its ongoing spending activities and investments cannot be funded by federal revenues alone. Decreases in federal revenue are largely due to either a decrease in tax rates or individuals or corporations making less money. The national debt enables the federal government to pay for important programs and services even if it does not have funds immediately available, often due to a decrease in revenue. Decreases in federal revenue coupled with increased government spending further increases the deficit.
Consistent with the purpose of the federal government established by the U.S. Constitution, money is spent on programs and services to ensure the well-being of U.S. residents. The Constitution’s preamble states that the purpose of the federal government is “…to establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” Uninterrupted funding of programs and services is critical to residents’ health, welfare, and security.
The U.S. government spent more than it collected during the 2023 fiscal year. The total bill for the year was $6.13 trillion and this created a deficit. Federal spending equaled 22.8% of the total GDP in 2023. The government funds goods, programs, and services each year that support the United States and the interest it’s incurred on outstanding federal debt. The U.S. spends more than other wealthy nations on healthcare relative to the size of its economy and population. U.S. healthcare spending of 16.6% of GDP is more than Germany’s 12.7% and Japan’s 11.5%. These are 2022 numbers, the latest available for comparison. In 2023, annual U.S. military spending exceeded that of the next 10 highest spenders combined.
Social Security and Medicare
Deficits are expected to increase as baby boomer retirements swell the ranks of Social Security recipients. Four trust funds house Social Security and Medicare program income. The reserves held in the trust funds and program income from financing sources, such as the payroll tax, are used to pay benefits.
The Old-Age and Survivors Insurance (OASI) Trust Fund that supports Social Security payments can sustain 100% of total scheduled benefits until 2033. The Disability Insurance (DI) Trust Fund is projected to pay 100% of total scheduled benefits through 2098.
Medicare spending is 13% of total federal spending as of FYTD 2024. The Hospital Insurance (HI) Trust Fund for Medicare recipients will be able to pay 100% of scheduled benefits until 2036. The Supplemental Medical Insurance Trust Fund is financed into the indefinite future because its financing sources include premiums on beneficiaries and Treasury contributions.
In accordance with the 2014 DATA Act, federal agencies are required to submit financial data on a quarterly and/or monthly basis to USAspending.gov. Anyone can visit USA spending for a breakdown of what the federal government spends each year and how it spends that money. Visitors can follow the money from the Congressional appropriations to the federal agencies and down to local communities and businesses.
Government Borrowing
Periods of economic growth tend to increase the demand for government bonds. Public borrowing accommodates the net savings of households and corporations, meeting their demand for safe assets or debt securities that are expected to hold their value over time.
The U.S. government borrows by issuing Treasury Inflation-Protected Securities (TIPS) and Floating Rate Notes (FRNs) in addition to selling Treasury bills, notes, and bonds. Its borrowing instruments also include savings bonds, as well as government securities that represent intergovernmental debt.1
Other nations have borrowed from international organizations like the International Monetary Fund (IMF), The World Bank, and private financial institutions.
The Growing National Debt
During the American Revolutionary War, the U.S. incurred a debt that continued to grow until 1835 with the sale of federally-owned lands and cuts to the federal budget. The debt grew over 4,000% during the Civil War, increasing from $65 million in 1860 to $2.7 billion shortly after the war ended in 1865. The U.S. has carried debt since its inception. Debts incurred during the American Revolutionary War amounted to over $75 million by January 1, 1791. Over the next 45 years, the debt continued to grow until 1835 when it notably shrank due to the sale of federally-owned lands and cuts to the federal budget. Shortly thereafter, an economic depression caused the debt to again grow into the millions. The debt grew over 4,000% through the course of the American Civil War, increasing from $65 million in 1860 to $1 billion in 1863 and almost $3 billion shortly after the conclusion of the war in 1865. The debt grew steadily into the 20th century and was roughly $22 billion after the country financed its involvement in World War I.
Notable recent events triggering large spikes in the debt include the Afghanistan and Iraq Wars, the 2008 Great Recession, and the COVID-19 pandemic. From FY 2019 to FY 2021, spending increased by about 50%, largely due to the COVID-19 pandemic. Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt.
Comparing a country’s debt to its gross domestic product (GDP) reveals the country’s ability to pay down its debt. This ratio is considered a better indicator of a country’s fiscal situation than just the national debt number because it shows the burden of debt relative to the country’s total economic output and therefore its ability to repay it. The U.S. debt to GDP ratio surpassed 100% in 2013 when both debt and GDP were approximately 16.7 trillion.
The average GDP for fiscal year 2024 was $28.83 T, which was less than the U.S. debt of $35.46 T. This resulted in a Debt to GDP Ratio of 123 percent. Generally, a higher Debt to GDP ratio indicates a government will have greater difficulty in repaying its debt.Breaking Down the Debt
The national debt is composed of distinct types of debt, similar to an individual whose debt consists of a mortgage, car loan, and credit cards. The national debt can be broken down by whether it is non-marketable or marketable and whether it is debt held by the public or debt held by the government itself (known as intragovernmental). The national debt does not include debts carried by state and local governments, such as debt used to pay state-funded programs; nor does it include debts carried by individuals, such as personal credit card debt or mortgages.
The visual below comparing calendar year 2015 and 2025 displays the difference in growth between debt held by the public and intra-governmental debt. While both types of debt combine to make up the national debt, they have increased by different amounts in the past several years. One of the main causes of the jump in public debt can be attributed to increased funding of programs and services during the COVID-19 pandemic. Intra-governmental debt has not increased by quite as much since it is primarily composed of debt owed on agencies’ excess revenue invested with the Treasury. The revenue of the largest investor in Treasury securities, the Social Security Administration, has not increased significantly in recent years, resulting in this slower intra-governmental holding increase.
There are two major categories for federal debt: debt held by the public and intragovernmental holdings.
The debt held by the public has increased by 128% since 2015. Intragovernmental holdings increased by 45% since 2015.
Maintaining the National Debt
The federal government is charged interest for the use of lenders’ money, in the same way that lenders charge an individual interest for a car loan or mortgage. How much the government pays in interest depends on the total national debt and the various securities’ interest rates.
As of July 2025 it costs $1013 billion to maintain the debt, which is 17% of the total federal spending in fiscal year 2025.
The national debt has increased every year over the past ten years. Interest expenses during this period have remained fairly stable due to low interest rates and investors’ judgement that the U.S. Government has a very low risk of default. However, recent increases in interest rates and inflation are now resulting in an increase in interest expense.
When interest rates remain low over time, interest expense on the debt paid by the federal government will remain stable, even as the federal debt increases. As interest rates increase, the cost of maintaining the national debt also increases.
The Debt Ceiling
The debt ceiling, or debt limit, is a restriction imposed by Congress on the amount of outstanding national debt that the federal government can have. The debt ceiling is the amount that the Treasury can borrow to pay the bills that have become due and pay for future investments. Once the debt ceiling is reached, the federal government cannot increase the amount of outstanding debt, losing the ability to pay bills and fund programs and services. However, the Treasury can use extraordinary measures authorized by Congress to temporarily suspend certain intragovernmental debt allowing it to borrow to fund programs or services for a limited amount of time after it has reached the ceiling.
Since the United States has never defaulted on its obligations, the scope of the negative repercussions related to a default are unknown but would likely have catastrophic repercussions in the United States and in markets across the globe.
Tracking the Debt
Created in 2012 and operating under the Department of the Treasury, the Bureau of the Fiscal Service manages all federal payments and collections and provides government-wide accounting and reporting services. A primary function of the Fiscal Service is to account for and report the national debt, as dictated by the U.S. Constitution, which states that “regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”