The Growing Burden: U.S. Interest Payments on the National Debt


October 24, 2024 09:00 AM PDT

(PenniesToSave.com) – Imagine paying hundreds of dollars a month in interest on your credit card without making a dent in your balance. That’s similar to what the U.S. government is experiencing with the national debt, where rising interest payments are becoming a major financial burden. As the debt grows, these payments threaten to crowd out essential government spending on education, infrastructure, and healthcare.

What is the National Debt?

The U.S. national debt currently stands at over $33 trillion. This massive amount is split between public debt—borrowed from investors, foreign governments, and financial institutions—and intragovernmental debt, which is money owed to programs like Social Security. A significant portion of the government’s spending goes toward servicing this debt, meaning paying interest on the borrowed funds.

In 2023, the U.S. spent around $640 billion just on interest payments. As interest rates rise and the debt grows, these payments are expected to increase even more. This growing burden is a major concern for the federal budget, as it reduces the funds available for other priorities.

Comparison to Personal Finances: Credit Card Debt

To understand how this impacts the U.S. budget, think about how credit card debt works in personal finance. If you have $10,000 in credit card debt with a 20% interest rate, you might pay hundreds of dollars each month in interest without reducing the principal balance. Similarly, the U.S. is spending billions on interest payments without reducing its total debt.

For individuals, high credit card interest can make it nearly impossible to escape debt, as the principal amount remains untouched. For the U.S., rising interest payments mean less money for essential services like healthcare, education, and infrastructure. It’s like a family struggling to pay for groceries because they’re stuck paying off credit card interest.

Who Receives the Interest Payments?


Interest payments on the national debt go to a range of recipients:

  • Domestic and foreign investors: Investors who hold U.S. Treasury bonds, including banks, mutual funds, and pensions, receive interest payments.
  • Foreign governments: Countries like China and Japan, which are among the largest holders of U.S. debt with each holding over $1 trillion in U.S. debt​, receive billions of dollars in interest annually.
  • Intragovernmental payments: Some of the interest is paid back to U.S. government programs, like Social Security, that invest in Treasury bonds.

In FY 2023, these payments totaled hundreds of billions of dollars. As interest rates rise, more of the federal budget will be devoted to paying off bondholders, leaving less for other domestic needs.

The Insidious Nature of Debt

Debt can be insidious, both for individuals and for governments. For an individual, it can start with a manageable balance that grows out of control due to interest rates. For the U.S., rising interest rates and increased borrowing costs lead to what’s known as the “debt trap”: borrowing more just to pay off previous debt obligations.

As more of the government’s budget goes toward interest payments, it leaves fewer funds for things like healthcare, education, and defense. Worse yet, if borrowing continues unchecked, future generations will be left with a heavier financial burden. It’s similar to a household drowning in debt, making it harder to invest in long-term goals, such as buying a home or saving for retirement.

Final Thoughts

Interest on the national debt is an issue that affects every American, even if it’s not immediately obvious. Just like high interest on a credit card limits personal financial freedom, growing interest payments on the national debt restrict the government’s ability to invest in programs that benefit the public. Addressing this problem will require difficult financial choices, much like managing personal debt.

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