The U.S. national debt is a staggering number—over $37 trillion as of 2025. That’s a mind-boggling amount, larger than the entire economies of China, Japan, and Germany combined. But what does that really mean for the average American? Who does the U.S. owe this money to, and how does the government plan to pay it back?

If you’ve ever wondered about the U.S. debt but found financial discussions too complicated, don’t worry. This article breaks it all down in simple terms, using everyday examples to explain a complex issue that affects everyone.

National debt of the United States

What Is the National Debt?

At its core, the national debt is the amount of money the U.S. government has borrowed over the years to cover expenses that exceed its income (tax revenues). Think of it like this: If you earn $4,000 a month but spend $5,000, you’d have to borrow $1,000 to cover the difference. If you do this every month for several years, you end up with a large amount of debt.

The U.S. government operates the same way. It collects money through taxes (from individuals and businesses) but often spends more than it brings in. To cover the difference, it borrows money by issuing Treasury bonds, bills, and notes—which are essentially IOUs with a promise to pay them back later with interest.

The Two Types of U.S. National Debt

• Debt Held by the Public (About $29 trillion)
  • Includes money borrowed from individuals, businesses, banks, pension funds, and foreign governments.
  • Think of it like getting a loan from a bank or borrowing from a friend.
• Intragovernmental Holdings (About $7.4 trillion)
  • This is money the government owes to itself, mainly from trust funds like Social Security and federal retirement funds.
  • Imagine borrowing from your own savings account but needing to pay yourself back later.

Who Owns America’s Debt?

Many people assume the U.S. debt is mostly owed to foreign countries, but that’s only part of the story. In reality, the biggest portion of U.S. debt is held by Americans themselves—through pension funds, mutual funds, banks, and even Social Security.

How Does the U.S. Pay Back Its Debt?

• Rolling Over Debt: The government issues new debt to pay off old debt.
• Economic Growth: A growing economy means higher tax revenues, which helps reduce the debt.
• Inflation: Inflation reduces the real value of debt over time.
• Spending Cuts and Tax Increases: Cutting government spending and increasing taxes can help reduce debt.

Will the U.S. Ever Be Debt-Free?

In theory, the U.S. could pay off its debt by dramatically cutting spending and raising taxes. But in practice, completely eliminating the debt is unlikely—and not necessarily a good thing.

What Would Happen If the U.S. Defaulted on Its Debt?

A U.S. debt default—failing to pay interest or principal on time—would cause a financial catastrophe:

• Global markets would panic.
• Interest rates would skyrocket.
• The U.S. dollar’s value would plummet.

Should You Be Worried?

While $37 trillion is a huge number, debt itself isn’t always bad. The key is how it’s managed. The U.S. government has historically been able to handle its debt by growing the economy, keeping investor confidence, and making adjustments when necessary.

For the average person, the debt matters because:

• It affects interest rates (mortgages, car loans, student loans).
• It influences government spending (on healthcare, defense, infrastructure).
• It impacts inflation and the economy.

The most important thing isn’t the debt itself, but how the government controls spending and grows the economy over time.