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

The U.S. national debt just cleared a record $36.2 trillion—more than the annual output of China, Japan, Germany, the U.K., and India combined. That’s also roughly $106,000 per American.

The government will pay about $684 billion in interest this fiscal year alone—roughly 16% of every federal dollar spent—then roll maturing debt into a steady stream of new Treasury securities.

While the debt has grown steadily over decades, warning lights are flashing brighter than ever: in May 2025, Moody’s stripped Washington of its last triple-A rating, bluntly warning that successive administrations have failed to rein in spiraling deficits.

It is the first time that all three major agencies—S&P (2011), Fitch (2023), and now Moody’s—rate America’s debt below the top tier. If investor confidence wavers, borrowing costs would climb just as trillions in Treasuries hit a “maturity wall” in 2026, testing demand on a scale never seen before.

How the Debt Is Structured—And Its Size

The government takes on debt to cover the gap between what it spends and what it collects in taxes—so it can keep funding programs, services, and investments even when current revenues fall short.

The U.S. national debt is a mix of government bonds that trade daily and non-marketable securities that sit exclusively on federal ledgers. This “intragovernmental” debt is money owed by one arm of the government to another—mostly for programs like Social Security and Medicare. 

War spending drove early leaps in the debt, from $75 million after the Revolution to upwards of $3 billion after the Civil War. However, modern surges following the Great Recession pushed the debt-to-GDP ratio above 100% in 2013, and the COVID-19 stimulus to more than 120% today.

Unlike households, which must pay off their debts or risk bankruptcy, the federal government can roll debt indefinitely. Washington can raise taxes and, through the Fed, create more dollars. That is one reason U.S. Treasurys remain the closest thing to a “risk-free” asset and why Washington can keep borrowing year after year.

How the Government Pays Its Debt

In effect, the Treasury acts like a giant bond-fund manager: it pays out interest from current tax receipts, then issues fresh bonds to replace those that mature. This process involves regular auctions where Treasury securities are sold to investors, providing the government with the necessary funds to cover expenditures.

Foreign investors still hold about $9 trillion, led by Japan ($1.13 trillion), the U.K. ($779 billion), and China ($765 billion). Domestic pension funds and mutual funds own a growing share.

Debt Ceilings and Future Pressures

Despite mounting debt, Congress has raised the debt ceiling 78 times since 1960, using “extraordinary measures” to avoid default when the cap is reached.

There have, of course, been efforts to reduce the size of the debt, but these have often been undermined by political gridlock, unrealistic assumptions, or voter-friendly policies. Elon Musk’s so-called Department of Government Efficiency (DOGE) initially claimed $160+ billion in savings, but watchdogs say it simply shifted or delayed costs and cost taxpayers billions instead.

Meanwhile, annual net-interest outlays are expected to reach $1.8 trillion by 2035, as President Trump’s recent budget proposal, dubbed the “Big, Beautiful Bill,” is projected to add $3+ trillion to the national debt over the next decade, with further tax cuts increasing the burden by another $3.8 trillion.

The Bottom Line

The U.S. doesn’t so much “pay off” its national debt as manages it, relying on continued investor confidence, a flexible debt ceiling, and economic growth. Credit downgrades and rising costs, however. highlight growing risks—but the depth of Treasury markets and America’s unique fiscal standing still give policymakers room to act for now—if they choose to.