Here's how America's $40 trillion debt can hit your wallet

The U.S. national debt this week topped $40 trillion, raising fresh concerns about how rising federal borrowing could affect Americans' finances.

Why it matters: Americans don't personally owe the national debt, but rising debt could pressure lawmakers to raise taxes, cut spending or change federal benefits.

State of play: The gross federal debt hit $40 trillion for the first time on Wednesday.

• That figure includes debt the government owes itself. Economists usually focus on the roughly $32 trillion held by the public when assessing how debt affects the economy.
• President Trump's tax-and-spending law is projected to add trillions to federal deficits over the next decade, while the White House has sought tens of billions of dollars in additional funding tied to the Iran war.

Loans can get more expensive

Higher national debt could make mortgages, student loans and small-business borrowing more expensive by putting upward pressure on interest rates, according to a new report from the Conference Board, a nonprofit think tank.

The big picture: As U.S. debt grows, investors could demand higher yields if they become less confident in the government's fiscal position.

• "If investors begin to view U.S. debt as riskier, interest rates could rise further, increasing borrowing costs for expansion, hiring, and investment," the Conference Board report says.

How it works: Mortgage rates, for example, tend to move closely with the yield on the 10-year Treasury note, which reflects the return investors demand to lend money to the federal government, says Brett Loper, executive vice president for policy at the fiscal think tank Peter G. Peterson Foundation.

• When Treasury yields rise, mortgage rates tend to rise, too. "If it is costing more and more for the government to borrow ... it's going to push up mortgage rates," he says.
• Loper says higher government borrowing costs can filter through to auto loans, bonds that finance school construction and other forms of borrowing.

Inflation risks

Threat level: High debt could add to inflation concerns if investors begin to fear that policymakers will eventually rely on inflationary measures to deal with the government's fiscal problems, Loper says.

• "You're creating risks that we're going to have to print more money or monetize the debt in some way, and those types of fears cause pressure on inflation," Loper says.

More of your tax dollars go to interest

Zoom in: As the national debt grows, the federal government has to devote more money to interest payments.

• That can leave lawmakers with less room to fund priorities such as defense, infrastructure and education.

Case in point: The federal government is projected to spend more than $1 trillion on net interest in 2026, more than it will spend on any mandatory program other than Social Security or Medicare, per the CBO's projections.

What's next

Washington has shown little appetite for changing the nation's fiscal trajectory, leaving the political debate over spending and taxes unresolved.

• But Americans "are starting to connect the dots" about how the national debt affects them, Loper says, particularly through high mortgage rates. This could affect how they vote in the midterms, he says.
• Putting federal debt on a more sustainable path ultimately requires some combination of slower spending growth and higher revenue, according to the CBO.

Go deeper: Treasury to double down on buybacks to steady bond market

Courtenay Brown contributed to this report.