Two Kinds of Borrowing
Most of us have borrowed money — for a car, a house, or a credit card. The government borrows too, though the rules are very different.
For consumers, lenders impose strict limits based on income and repayment ability. For the U.S. government, the only real limit is the debt ceiling, set (and reset) by lawmakers.
So how much debt is too much? The answer looks very different depending on whether you’re a household or the federal government.
The Numbers
Debt ceiling: Set at $41.1 trillion as of July 4, 2025, but new spending bills remain stalled in Congress. With no agreement, a government shutdown looms.
Debt service: Annual interest payments are nearing $1 trillion — and rising.
Default risk: For consumers, missed payments lead to lower credit scores or bankruptcy. For governments, failure means a Treasury default, higher yields, and shaken confidence in the dollar.
Creditworthiness: Moody’s downgraded U.S. debt in May 2025, citing a decade-long rise in debt ratios. The news sent the S&P 500 down 6.6%, though markets quickly rebounded.
Foreign demand: In July, foreign buyers held a record $9.16 trillion in Treasuries — suggesting confidence remains intact, at least for now.
What to Watch
For households: Debt is too high when income and assets can’t cover payments. Job security, steady cash flow, and savings determine how much is “too much.”
For governments: Markets and rating agencies set the limits. If growth slows and interest costs climb, confidence could shift quickly.
Takeaway
For consumers, too much debt means missed payments and financial strain. For governments, it’s a market-driven judgment call. Right now, investors are still buying Treasuries in record amounts — signaling faith that U.S. debt remains sustainable.
But with borrowing costs rising and growth uncertain, the line between manageable and “too much” could move faster than policymakers expect.
— Lauren
Editor, American Ledger