Interest expenses are consuming America’s budget.
What to Know:
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The U.S. national debt has surpassed $36 trillion as of 2025, leading to increased interest payments.
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Interest expenses now exceed $1 trillion annually, surpassing both defense and Medicare spending.
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Rising interest payments limit funding for essential programs, affecting economic growth and public services.
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Contributing factors include persistent budget deficits and higher interest rates due to inflation.
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Addressing the debt issue requires spending cuts, strategic debt management, and policies promoting economic growth.
America's debt problem is a ticking time bomb that jeopardizes our economy, national security, and the financial security of every taxpayer. It is more than just a figure floating around in Washington. With the national debt now exceeding $36 trillion as of 2025, the U.S. government is paying more in interest on this debt than ever before, surpassing $1 trillion annually. That’s more than the entire defense budget or Medicare spending. Unlike discretionary programs, these interest payments cannot be cut, meaning they will continue to drain resources unless drastic action is taken.
Source: Fiscal Data
This crisis is no longer theoretical. It is eating up our federal budget, driving up deficits, and reducing the country’s ability to invest in the future. If nothing changes, America could face a fiscal disaster that limits economic growth, forces massive tax hikes, or leads to severe cuts in essential programs.
How Interest on the National Debt Became a Monster
For decades, the U.S. government has borrowed money to finance everything from wars to social programs, often with little regard for long-term consequences. However, two major shifts have turned what was once a manageable issue into a full-blown crisis.
First, after years of historically low interest rates, the Federal Reserve was forced to raise rates aggressively from 2022 to 2024 to combat inflation. This sudden increase in borrowing costs has sent interest payments soaring. In 2020, the average interest rate on government debt was just 1.5 percent, but by 2024, that rate had more than doubled to over 4 percent. Every percentage point increase in interest rates adds hundreds of billions of dollars in costs to taxpayers, making debt management significantly more difficult.
Second, the government’s spending habits have exacerbated the crisis. The U.S. has not run a balanced budget since 2001. Every year, it spends hundreds of billions—sometimes trillions—more than it takes in. Massive COVID-19 relief spending, military aid to Ukraine, and increased entitlement spending have all accelerated the debt crisis, with Congress showing little interest in slowing down. At this rate, the Congressional Budget Office projects that interest payments will exceed all discretionary spending by 2040, including key programs such as education, infrastructure, and defense.
Controlling the Treasury Department's Increasing Debt
The U.S. Department of the Treasury is responsible for managing the national debt through its issuance of government securities, including Treasury bonds, notes, and bills. However, in the current high-interest rate environment, the Treasury faces serious challenges in containing the cost of borrowing and maintaining investor confidence.
One of the most pressing issues is the structure of U.S. debt. A significant portion of government debt is short-term, meaning it must be refinanced frequently. As of 2024, nearly 30% of U.S. federal debt matures within one year, while over 40% will need to be refinanced within five years. When interest rates were historically low, this short-term strategy kept borrowing costs manageable. However, with the Federal Reserve raising interest rates to combat inflation, refinancing this debt at much higher rates has dramatically increased the government’s interest expenses.
Department of Government Efficiency (DOGE) Faces Challenges in Reducing U.S. Debt
The Department of Government Efficiency (DOGE), established to streamline federal spending, has encountered significant obstacles in its mission to reduce the national debt. Despite implementing aggressive cost-cutting measures, such as reducing federal leases and targeting improper payments, the overall federal spending reached a record $603 billion in February 2025. Legal challenges have impeded DOGE's initiatives, including a federal judge's injunction against accessing personal Social Security data. These setbacks highlight the complexities involved in achieving substantial debt reduction through efficiency reforms alone.
Investor Confidence and Market Risks
The ability to finance debt efficiently depends on investor confidence. U.S. Treasury bonds are traditionally seen as one of the safest investments in the world, but growing deficits and political uncertainty are raising concerns among domestic and foreign investors. If markets begin to doubt the government’s ability to manage its debt, investors will demand higher yields (interest rates) on U.S. bonds, further increasing borrowing costs.
Foreign creditors, such as China and Japan—two of the largest holders of U.S. debt—have already begun reducing their holdings of U.S. Treasury. A significant sell-off by major investors could trigger higher interest rates, increased market volatility, and even a financial crisis. This risk, while not immediate, is a long-term concern for economic policymakers.
Potential Remedies to Address Rising Interest Expenses
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Spending Cuts: Implementing targeted reductions in discretionary spending can help lower the deficit. However, such cuts must be balanced to avoid undermining essential services and investments critical to economic growth.
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Issuing Longer-Term Bonds: Shifting from short-term to longer-term debt instruments can lock in current interest rates, mitigating the impact of future rate increases. This strategy provides greater predictability in debt servicing costs.
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Monetary Policy Adjustments: Coordinated efforts between fiscal authorities and the Federal Reserve to maintain stable inflation and interest rates can reduce borrowing costs. However, reliance on monetary policy alone is insufficient without addressing underlying fiscal imbalances.
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Enhancing Economic Growth: Policies that stimulate economic growth can increase tax revenues, helping to reduce deficits and the debt-to-GDP ratio. Such policies may include investing in infrastructure, education, and research and development.
Wrap Up
The longer Congress waits, the worse the debt crisis will get. Interest payments are already outpacing key federal programs, forcing difficult choices that will impact every American. Without immediate action, the government will either have to raise taxes significantly, slash essential programs, or continue borrowing at unsustainable levels, pushing the nation toward financial instability.