Earlier this week, credit rating agency Moody’s downgraded its rating on America’s debt, and discerning queers have questions. Who does Moody’s think she is? What the hell does a downgrade even mean? And was the federal government getting 3 percent cash back on all our spending – or at least a few extra airline points?
It’s hard to clutch our pearls at the news when we don’t quite understand what’s happening. And what’s tricky is we can’t really compare a government’s debt to a personal budget; they’re two very different things, influenced by very different economics. Most of us don’t need to totally stay on top of this macroeconomic realness in our day-to-day-lives, but like tariffs, a debt downgrade could have ripple effects in areas like inflation, mortgage rates, and credit cards, so let’s go through what it all might mean for your wallet.
What is the national debt?
(sips martini) Mmkay, so the U.S. government creates policies and programs, and all that stuff costs money. Like a lot of us, America sometimes goes over budget on its spending, so it has to borrow money to cover the costs. To do this, the Treasury sells bonds. You buy a bond and get paid interest on it while you hold it, then get your initial money back when the bond matures. About a quarter of our debt is owned by foreign investors, including other countries’ governments.
Currently, our national debt is just over $36 trillion, which is a shit-ton of money. There’s a limit on how much money the government can borrow, but Congress can increase this limit if it wants. This is called the debt ceiling, and every couple of years Congress inevitably votes to kick the can down the curb and increase the debt ceiling to avoid a meltdown.
What does the downgrade mean?
Investors can point to the downgrade as evidence to not buy bonds in the future. But Moody’s is one of a number of credit agencies; S&P already downgraded the U.S. back in 2011, and Fitch downgraded us in 2023, so it’s not like Moody’s has “Joaquin Phoenix in Gladiator”-level authority. The downgrade creates leverage for both domestic and foreign investors. They can say “babe, your rating’s not as good; if you want me to buy more bonds, you need to offer me a better interest rate.”
Those higher interest payments would cost us even more money, and currently about 10 percent of all our taxes goes toward interest payments on our debt, which leaves less budget for other programs. Over $9 trillion of these bonds come due in the next year, way more than the $1 trillion that came due last year, so pundits are watching the bond market closely these next few months.
The optics also aren’t great for President Trump’s forthcoming tax bill, which would add about $4 trillion to the national debt and allocate much of the tax savings to the rich. At the time of this writing, the bill is working its way through Congress.
What does this mean for your wallet?
Knowing the country is crunched for cash, the Federal Reserve might make borrowing money more expensive. When it’s more expensive for banks and lenders to borrow money, they typically pass that cost along to consumers in the form of higher interest rates on things like credit cards, auto loans, and mortgages.
Debt can be an eyesore in your budget, but with prices potentially going up in the near future, you might want to focus your money efforts on socking away extra cash. Between uncertainties about fiscal policy and the forthcoming impact of tariffs, we might see an economic slowdown soon, which can lead to things like job cuts and layoffs. Start bedazzling that safety net now so you’re prepared for what might happen next, and focus on what you can control to keep your spirits high.
Nick Wolny is Out magazine’s finance columnist. He writes Financialicious, a personal finance newsletter tailored toward queer readers, and is working on his first book, Money Proud, which releases later this year. NickWolny.com @nickwolny
