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What Is the Debt Ceiling?

Everyone has their limits—even the government. Nope, we’re not talking about personal boundaries here (although wouldn’t that be nice). We’re talking about debt. Believe it or not, even though the American government has a habit of spending like it’s going out of style, it actually has a limit to the amount of debt it can take on. This limit is called the debt ceiling. And since 1960, the government has raised or revised the debt ceiling to borrow more money 78 times.1 (Oh, gee, is that all?)

Each time the debt ceiling goes up, sooner or later our national debt goes up too. As of December 2021, the national debt is clocking in at $28.9 trillion.2 Yuck. Yeah, it’s hard to stomach that many zeros (12, to be exact). But get this: In the last 10 years or so, the national debt has gone up at a crazy fast rate. We’re talking faster than any time since World War II.3 Yup. So, how does the debt ceiling impact you? Let’s get into everything you need to know about the debt ceiling.

What Is the Debt Ceiling?

The debt ceiling is the limit on how much debt the U.S. government can have. It’s a lot like a credit card limit (shudder) where you’ve only been approved for a certain amount of debt. But instead of American Express setting the limit here, the American government’s spending cap is set by Congress. So it takes a vote by Congress and a passed law before the debt ceiling can be raised.

And why does the government even have to borrow money anyway? Turns out, the money that the government brings in from taxes alone isn’t enough to cover everything. To make up the difference and be able to pay the current bills, the government uses debt.4

What’s Happening With the Debt Ceiling Right Now?

Well, spoiler alert: The debt ceiling was just raised on December 16, 2021.5 Congress passed the bill earlier that week and President Biden signed the bill when it came across his desk. This latest hike in the debt ceiling raises the national debt limit by $2.5 trillion and keeps it off everyone’s plates . . . that is, until 2023.6

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Now, if this all sounds pretty familiar, that’s because it is. The debt ceiling was just raised back in October 2021—after a lot of back and forth (real shocker there). And while it seemed like the government bought itself some more time before it had to raise the debt ceiling again—eh, it really didn’t. Raising the debt ceiling back in October just kicked the can farther down the road (and helped us skip a government shutdown).

Still, this latest deal from Congress means the government can keep paying its bills through 2023. But what happens then? Well, surprise, surprise—they’ll have to vote to decide if they’ll raise the debt ceiling again. So buckle up, folks, and prepare your hearts to hear all about this debt ceiling business again as we get closer to that next big deadline.

What Kind of Debt Does the United States Have?

The American government has two different types of debt to its name—intragovernmental debt and public debt. Nope, the government doesn’t have a credit card it’s racking up stupid airline miles with. Instead, its debt looks like this:

Intragovernmental Debt

Think of this one as what the government owes to itself (ironic, isn’t it?). Things like the Social Security Trust Fund and retirement funds for federal employees fall into this category.7 So basically, the government has to pay for the essential things it needs to function, but it uses debt against itself to make it happen.

Public Debt

This one is just like it sounds. Public debt is the debt that’s owed to everyone else (like debt we owe to other countries, American banks, and investors).8 Public debt includes a laundry list of things like Treasury bills, notes and bonds. Most of the debts in the U.S. fall into this public debt group.

What Happens if the Debt Ceiling Doesn’t Get Raised?

So, what happens if Congress doesn’t raise the debt ceiling anyway? We hear about raising the debt ceiling a lot, but is it even that big of a deal?

The short answer? Yup. Here’s why:

Congress has to do something so the U.S. doesn’t totally default on its debt (aka not pay on the debt at all). If Congress sits back and doesn’t do anything about the debt ceiling, the U.S. Treasury Department has to stop paying out Treasury bills, bonds and notes. And that’s just the beginning.

If Congress doesn’t raise the debt ceiling, then the Treasury Department can only pay its bills when your tax money comes in each year. And if that tax money isn’t enough to cover the bills, then it’s up to the secretary of the Treasury to decide what’s going to get paid—Social Security benefits, federal employee salaries or the big, whopping interest on the grand total of the national debt.

And what about the long-term impact of not raising the debt ceiling? Well, it’s actually never happened before, so no one knows for sure how bad things would be. But economists say if the government did default on its debt, we’d see the value of cash and stocks take a tumble, and interest rates would go through the roof (we don’t even want to know what that kind of inflation would look like—yikes!).

Have you noticed a theme here yet? Basically, the government relies on debt to foot the bill for most things (and has for a long time). Debt is the key ingredient we use to just keep the basic functions of our government working. Yeah, it’s pretty ridiculous. We’ve dug ourselves into such a massive hole that we have to keep asking to have our line of credit extended—just so we can keep on spending. Nope, it’s not an episode of The Twilight Zone. It’s just another day in the life of the U.S. government.

What Happens if the Debt Ceiling Does Get Raised?

Well, hooray! The government doesn’t have to default on its debt. But wait . . . that just means it increased its debt limit and can now borrow even more money. Oh, great.

In plain English, once the debt ceiling is raised, the government is able to pay its bills, but it’s also able to rack up more debt again. If you’ve ever heard the phrase “spending like you’re in Congress,” this is where it comes from. It’s no secret that government spending is out of control.

Make Sure You Aren’t Adding to Your Own Debt Ceiling

Look, we aren’t going to lie—it makes us mad to see the country going into more and more debt. No one should be happy about that sort of thing. You can yell at Congress while watching C-SPAN on TV all you want, but the truth is—you can’t control what happens in the government. But you can control what you do with the money in your own bank account.

No matter what wacky decisions the government makes, you have the power to be sure the plan for your money is solid. How? By getting on a budget, dumping debt, and making savings a priority. With Ramsey+, you can do all of that, plus get access to our budgeting app, EveryDollar, and proven plan, Financial Peace University.

At the end of the day, the government is going to do whatever it wants to do. And even though you can’t do much about that, you can get serious about taking care of the money in your house and making sure you’re not raising your own debt ceiling. And who knows? Maybe you’ll even inspire Uncle Sam while you’re at it.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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