When Debt Stops Being a Tool
As inflation lingers and borrowing costs stay high, rising government and household debt is quietly limiting choices, shrinking margins, and increasing the risk that everyday shocks turn into crises.
Editor’s note:
This opinion is intended to examine the growing role debt plays in everyday economic life, not as an abstract policy debate, but as a practical constraint facing households and governments alike. As inflation persists, borrowing costs remain elevated, and job stability appears less certain, HSU believes it is important to examine how these forces intersect and what they may mean for residents if current trends continue.
Holly Springs, NC, Feb. 2, 2026 — For years, debt was treated as a background condition of economic life, manageable, refinancable, and largely invisible. Low interest rates made borrowing feel not only affordable but also rational. Governments could spend, households could stretch, and the assumption was that tomorrow’s growth or refinancing would smooth out today’s obligations.
That assumption no longer holds.
What makes the current moment different is not simply the size of America’s debt, but who is carrying it and under what conditions. Households are increasingly leveraged just as the federal government’s own debt load is limiting its flexibility. Layer inflation and growing job uncertainty on top, and debt stops behaving like a neutral tool. It becomes a constraint, one that shows up not in abstract totals, but in missed payments, repossessions, and fewer ways out when something goes wrong.
The scale matters, and it already affects choices
The federal government now carries more than $38 trillion in debt, a level that would have sounded unthinkable just a decade ago. Servicing that debt costs more than $1 trillion annually in interest alone, money that does not fund roads, schools, or tax reductions. It simply keeps past borrowing afloat.
That interest bill is now one of the largest single federal expenditures. In recent years, it has exceeded annual Medicaid spending and, at times, rivaled Medicare. Unlike healthcare spending, those dollars do not provide services or improve outcomes. They represent a growing claim on future budgets, competing directly with other government priorities.
As interest rates rose, the cost grew quickly. The larger it becomes, the less room policymakers have to respond to the next slowdown, crisis, or emergency without borrowing even more.
Debt is not the problem. Cash flow is.
Big numbers tend to dominate the debt conversation. Trillions of dollars in federal borrowing. Tens of trillions in household obligations. However, debt becomes destabilizing only when cash flow tightens.
For households, inflation is the quiet accelerant. Fixed debts may not rise with prices, but everything else does. Groceries, utilities, insurance, rent, and repairs consume a larger share of income, leaving less margin to absorb even unchanged monthly payments. For variable-rate and revolving debt, such as credit cards and auto loans, the impact is immediate.
At the government level, the mechanics are similar, just scaled up. As federal debt grows, interest costs rise alongside rates. Those costs do not disappear. They constrain future choices and increase reliance on bond markets to keep financing affordable. And when bond markets grow uneasy, that pressure does not stay confined to Washington. It feeds directly into mortgage rates, car loans, and consumer credit across the economy.
Debt does not need to explode to become dangerous. It only needs to become less forgiving.
Household stress is no longer theoretical
U.S. households now carry nearly $19 trillion in debt, according to the Federal Reserve Bank of New York. That includes mortgages, auto loans, student loans, credit cards, and other consumer borrowing. On its own, that figure says little. What matters is how that debt behaves when prices stay high, and paychecks stop growing.
For many families, debt that once felt manageable now leaves far less room for error. A car repair, medical bill, or brief job interruption can turn a tight budget into a missed payment much faster than it would have just a few years ago.
After plunging during the pandemic, helped by stimulus payments, forbearance programs, and temporary income support, delinquencies on credit cards and auto loans rebounded sharply. Federal Reserve researchers now find that while credit card delinquencies have recently stabilized, auto loan delinquencies are rising again, particularly among lower-income households and renters.
Auto loans matter because they fail fast. Cars are essential for work, payments are fixed, and repossession happens quickly once borrowers fall behind. That makes auto stress an early warning sign, one that is now flashing more insistently.
The pressure is spreading: foreclosures, bankruptcies, repossessions
No single indicator suggests a collapse. Taken together, the trend is difficult to ignore.
Foreclosure activity rose in 2025, with lenders initiating action on nearly 290,000 properties nationwide, according to ATTOM Data. That level remains well below crisis-era extremes, but the direction matters. So does the context, higher rates, thinner savings, and fewer refinancing options.
Bankruptcy filings climbed by double digits in 2025, based on both court system data and private trackers. That increase reflects distress, but also realism. When the math no longer works, households eventually stop pretending otherwise.
Meanwhile, auto repossessions surged as higher vehicle prices and interest rates pushed monthly payments beyond borrowers' ability to afford. The combination of elevated prices, longer loan terms, and higher rates has transformed what once was a manageable transportation debt into a recurring source of failure.
These are not isolated events. They are different expressions of the same constraint, shrinking financial flexibility.
Job instability is the accelerant no one can refinance away
Debt remains survivable right up until income falters.
Even modest job instability, layoffs, reduced hours, or shorter job tenures have disproportionate effects on heavily leveraged households. Those most exposed tend to have the smallest savings buffers, the highest effective interest rates, and the fewest tools to restructure debt once stress appears.
Federal Reserve analysis shows a widening divide. Higher-income households remain relatively resilient. Lower-income borrowers, by contrast, are increasingly vulnerable, particularly in auto loans. In an inflationary environment, income disruptions do not merely delay progress. They turn manageable obligations into cascading failures.
Debt does not collapse households. Lost income does. Debt merely determines how quickly the fall occurs.
Government debt and the bond market: why households feel it
At the federal level, the concern is not imminent default. It is a constraint.
As former Treasury Secretary Janet Yellen has warned, rising federal debt increases the risk of fiscal dominance, a world in which the government’s financing needs begin to limit how aggressively inflation can be fought without triggering financial stress.
In that environment, the bond market becomes more powerful. Investors may demand higher compensation to hold long-term government debt if they doubt deficits will narrow over time. When that happens, long-term rates can remain elevated even if short-term policy rates fall.
For households, the translation is simple and unforgiving:
Mortgage rates stay high
Refinancing options disappear
Auto and consumer borrowing remains expensive
Housing affordability stays strained
Government debt need not crowd out households directly to harm them. It only needs to keep borrowing costs elevated long enough for inflation and job risk to do the rest.
This was foreseeable and largely tolerated
None of this is accidental.
Years of cheap money, political incentives to spend without paying, and a widespread belief that refinancing would always be available shaped behavior at every level. Households stretched because it made sense to do so. Policymakers borrowed because the costs appeared distant and manageable.
Inflation did not create the debt problem. It exposed it.
What changed was not the willingness to borrow, but the environment in which borrowing now exists. When rates rise, prices stay elevated, and job security softens, the entire debt ecosystem becomes less stable, even if no single actor behaves recklessly.
Are there ways out?
There are, but none are painless.
For households, the path forward is practical rather than ideological. Protecting cash flow, reducing exposure to high-interest debt, building even modest buffers against income shocks, and acting early when stress appears all matter. Rising bankruptcies are a sign of strain, but also of households using the legal tools available when obligations become unpayable.
For the government, the path is slower and more politically difficult. Stabilizing debt over time, restoring confidence that deficits will narrow, and expanding the economy’s productive capacity so growth does more of the work are all necessary. Inflating away debt may sound appealing, but it risks higher long-term rates, deeper inequality, and greater household stress, especially for renters and lower-income families.
The warning is already visible
Debt becomes dangerous not when balances rise, but when flexibility disappears. That is the risk now taking shape.
Inflation narrows margins. Elevated rates close off escape hatches. Job instability turns setbacks into spirals. The evidence is already evident in delinquency data, foreclosure filings, bankruptcy court records, and repossession lots.
None of this guarantees a crisis. However, it suggests the country is drifting into a situation in which more shocks land directly on households, and fewer can be absorbed quietly.
Ignoring that reality does not make the math go away.
It only determines who pays when it finally does.
About the Author
Christian A. Hendricks is the publisher and founder of Holly Springs Update, a local news publication covering Holly Springs, NC, and its surrounding area. From time to time, he shares his views on national, regional, and state issues. He can be reached via email at christian.hendricks@hollyspringsupdate.com.
This framing around cash flow vs absolute debt levels is really sharp. The auto loan stuff especially hits when thinking about how fast those failures cascade once payments slip. Been seeing this play out with folks I know where a $800/month car paymet becomes the breaking point before even medical bills.