Debt is a double-edged sword. Managed wisely, it fuels growth, innovation, and stability. Mismanaged, it constrains choices, diverts resources, and poses risks for individuals, companies, governments, and the global economy. Rising debt levels now threaten financial security worldwide, making responsible borrowing and repayment more important than ever.
While borrowing has always been part of economic progress, today’s debt levels are unprecedented. The challenge lies in distinguishing between good debt, which funds’ investments that generate future value, and bad debt, which finances short-term consumption or unproductive spending. The cumulative impact of individual choices by various debtors within the borrowing ecosystem will determine whether debt functions as a tool for growth or a drag on prosperity.
Household Debt: The Strain on Families
Household debt directly affects financial health and future opportunity. When personal debt levels grow too high, families face reduced disposable income, fewer savings for emergencies or retirement, and higher vulnerability to economic shocks. This stress often extends beyond finances, leading to anxiety, depression, and conflict within families.
As of Q2 2025, U.S. household debt reached a record $18.39 trillion, increasing by $185 billion in just three months. Mortgages account for $12.9 trillion, while auto loans ($1.66 trillion) and student loans ($1.64 trillion) continue to climb. Student loan delinquencies rose sharply, with 4.4% of balances past due, following the resumption of reporting overdue accounts.
Adjusted for inflation, today’s household debt rivals levels seen during the 2008 financial crisis. Persistently high interest rates make repayment more difficult, amplifying the strain on families and limiting their ability to invest for the future.
Corporate Debt: Risks to Business Growth
For companies, debt is essential for financing operations and expansion. However, excessive corporate debt creates significant risks:
- Bankruptcy risk rises when debt exceeds a company’s ability to service it during
- downturns.
- Cash flow pressures reduce resources for daily operations, payroll, and R&D.
- Loss of flexibility due to restrictive loan covenants limits strategic decision-making.
- Slower invention and/or innovation as funds are diverted from growth to debt servicing
In mid-2025, U.S. corporate debt markets remain stable, supported by solid balance sheets. Yet small businesses face persistent financing challenges. According to the NFIB, the average rate on short-term loans was 8.7% in July 2025. Limited access to capital and sluggish job growth signal potential headwinds, particularly for smaller firms seeking to expand.
High corporate indebtedness also has broader implications. When firms are burdened by interest payments, they forgo opportunities to fund invention and/or innovation, workforce development, and productivity improvements, stifling long-term growth.
U.S. Government Debt: Mounting Pressure
Government borrowing can be vital to addressing a national crisis, whether financial or geopolitical, by providing resources to stabilize economies and protect citizens. However, persistent deficits and rising interest costs now threaten U.S. fiscal health and pose troubling concerns. As of September 2025:
- National debt: $37.32 trillion
- Debt per person: $108,717
- Debt per taxpayer: $320,000
- Federal budget deficit: $2 trillion
- Interest payments: $1.05 trillion – the third-largest federal expense, even
- exceeding the Department of War
The Debt-to-GDP ratio has soared from 34.66% in 1980 to 123.41% today, nearing levels last seen during World War II. Exploding debt repayment crowds out spending on infrastructure, education, and research while driving up borrowing costs for businesses and individuals thus negatively impacting economic growth, global competitiveness and consumer confidence.
Adding to the challenge, state and local governments hold an additional $3.2 trillion in debt. Together, these layers of public debt reduce fiscal flexibility and limit the nation’s ability to respond to future recessions, natural disasters, or global crises.
Global Perspective: Diverging Paths
Debt challenges are not unique to the U.S. but play out differently across the globe.
- Developing countries: Public debt reached $31 trillion in developing countries in 2024, having grown twice as fast as in advanced economies since 2010. Borrowing costs and record-high service payments leave many vulnerable to
- default and economic instability and thus political instability which exacerbates the challenges.
- Advanced economies: The bulk of global debt is held by developed nations.
- Total global public debt hit a record $102 trillion in 2024, creating a complex web
- of interdependence. The recent collapse of France’s government after a no-
- confidence vote over contested budget reforms underscores how political
- instability and soaring public debt—now at 114% of GDP—can quickly derail
- governance in advanced economies.
Global markets are deeply interconnected. A fiscal crisis in one region can ripple outward, affecting trade, investment, and financial stability worldwide. This interconnectedness underscores the need for coordinated policies and sustainable debt management practices.
Why Debt Matters
Rising debt has far-reaching implications for businesses, workers, and communities:
- Higher taxes or reduced services as governments allocate more funds tointerest payments instead of public goods.
- Slower economic growth as heavy borrowing crowds out private investment.
- Limited crisis response, leaving countries less prepared for recessions, pandemics, or geopolitical shocks.
- Global instability, with defaults in one region triggering financial contagion elsewhere
For companies, high leverage limits competitiveness and growth potential. For families, it diminishes financial security and upward mobility.
The Road Ahead
Addressing today’s debt crisis requires collective action:
- Individuals must focus on reducing personal debt, building savings, and making informed financial choices.
- Business leaders must carefully manage corporate debt, prioritizing sustainable
- investments that generate long-term returns.
- Policymakers must confront structural deficits and make difficult decisions to stabilize public finances.
Debt at every level has created a volatile and dangerous environment. The road ahead is not just bumpy; it’s riddled with sharp turns and hidden hazards that threaten financial stability and long-term prosperity. Without decisive action, rising debt could trigger higher taxes, reduced public services, weakened businesses, and diminished household wealth.
A stable and sustainable future will not happen by chance. It requires immediate, responsible decisions from business leaders, consumers, policymakers and voters. The longer we delay confronting this crisis, the steeper and more treacherous the road becomes. By acting now to rein in debt and prioritize growth-driven investments, we can avoid a financial collision and secure a safer path forward for generations to come.
About the Authors
Dr. Timothy G. Nash is director of the Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. Mr. Bob Thomas is COO of the Michigan Chamber of Commerce. Mr. Jim Holcomb is President and CEO of the Michigan Chamber of Commerce. Dr. Thomas Rastin is a retired business executive from Ohio.
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