The national debt just got bigger. According to the Congressional Budget Office, the U.S. government borrowed $696 billion in the first four months of the fiscal year, bringing the total to more than $38.7.2 trillion.
Here’s how the growing deficit will impact your wallet.
What’s Driving the Surge in the Federal Deficit?
There’s a misconception that the government borrows money only in a time of crisis. The U.S. is actually borrowing at crisis levels during normal times, and that’s the real problem, according to finance expert Andrew Lokenauth with Be Fluent in Finance.
“The government spent about $1.8 trillion more than it collected last year,” he said and explained three reasons why.
- An aging population. Social Security and Medicare costs are exploding because people are living longer and fewer workers are paying into the system for each retiree.
- Healthcare costs keep rising faster than inflation.
- Our tax system collects about 17-18% of GDP, but we’re spending over 23% of GDP.
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The Growing Cost of America’s Debt
Interest rates for deficit payments have tripled over the past five years, per the Committee for a Responsible Federal Budget, which ripples through mortgages, jobs, wages, taxes and economic stability.
“Today we’re paying over $1 trillion annually just on interest,” said Lokenauth. “That’s more than we spend on defense or Medicare — the government is now the third-biggest spender on itself.”
Why Tax Increases May Be Coming to Cover Debt Payments
Higher taxes are likely as a result of the rising national debt, according to Eric Mangold, CWS, founder of Argosy Wealth Management.
“The government would need to tap into all of us in the form of higher taxes to help it operate and make the interest payments on its debt,” he said. “At some point, the bill will be due.”
How the National Debt Affects Your Mortgage and Monthly Bills
Your grocery bill and mortgage rate could also be affected, Lokenauth noted.
“When the government borrows $696 billion in four months, it competes with you for the same pool of money,” he explained.
That means, if you want a mortgage or a small business wants a loan, you’re rivaling against the government.
The Yale Budget Lab found that a permanent deficit increase of just 1% of GDP would raise your annual mortgage payment by up to $1,240 after five years. After 30 years, it jumps to $2,300 per year.
The more the government borrows, the more Americans will feel a financial strain. Inflation will hit harder, the job market will suffer and people will pay more for loans and credit cards.
“It’s not just corporate greed driving prices up — it’s the government pumping money into the economy through deficit spending,” said Lokenauth.
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This article originally appeared on GOBankingRates.com: How The US Adding $696 Billion in Debt Impacts Your Money Every Day, According to Experts
