What is the debt ceiling?

The debt ceiling is essentially a cap set by Congress on how much money the federal government is allowed to borrow to meet its existing legal obligations. This includes spending on things like Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The debt ceiling does not authorize new spending but allows the government to meet financial obligations that Congress has already approved.

If the debt ceiling isn’t raised, the U.S. Treasury might not have enough money to cover all its bills, which could lead to the federal government defaulting on its debt. This situation could potentially disrupt financial markets and the economy both domestically and globally. Therefore, raising or suspending the debt ceiling doesn’t mean Congress is approving new spending; rather, it’s ensuring that the government can pay for expenses it has already committed to.

If the U.S. government were to hit the debt ceiling and couldn’t raise or suspend it, here’s how it might affect the average person:

• Government payments: Things a lot of folks rely on, like Social Security checks, veterans’ benefits, and federal salaries, could get delayed. That means people counting on this money for groceries, rent, and other day-to-day expenses could be in a real pinch.
• Interest rates: If the U.S. defaults, or even looks like it might, interest rates could shoot up. This hits everything from your credit card bills to what you pay on new mortgages or car loans. Higher interest rates could also make it tougher to sell or buy homes since mortgages would get pricier.
• Credit ratings: A default could ding the country’s credit score. Bad news for the U.S. credit rating means borrowing gets more expensive—not just for the government but maybe for you too, as banks get nervous and increase rates.
• Investments: Stock markets hate uncertainty, and a default screams uncertainty. If you’ve got money in stocks or bonds—think pensions or retirement accounts—you might see the value of these investments drop, which could mess with your financial plans for the future.
• Jobs and wages: Higher borrowing costs and a slowing economy could make companies put the brakes on hiring or even lead to layoffs. Plus, if the economy’s sluggish, don’t expect hefty pay raises.
• Government services: With the government strapped for cash, there could be less money to go around for public programs—from healthcare to education. That could mean cuts to services that many communities rely on.

All in all, hitting the debt ceiling without a way to resolve it could shake up just about everything from personal bank accounts to job prospects, showing just how deep government finances dig into everyday life.