Can a country ever be debt free?
If the question is referring to GOVERNMENTS, then the answer is yes, certainly. All the governments need do is reduce their spending to the bare minimum and pay off any debt they have.
So, when you hear about people who have absolutely no debt, live on less than they make, and have a stash of cash for emergencies, you might think they're . . . weird. But living a debt-free life isn't only for a special group of people. It's something anyone can do with hard work and some special characteristics.
Even in this age of global capital, most government debt is owed to domestic investors in most of the world. Turkey, for example, has a big national debt, but it is financed mostly by Turkish savers. It is perfectly possible for a country to have no national debt.
A country is in default when it can't pay its debts. This lowers its credit rating and decreases the cost of its debt. The country's entire economy can suffer and it may see less investment in the future as global investors become wary of buying that country's debt.
Country | National Debt (Million USD) | % of GDP |
---|---|---|
United States | $30.89 Mn | 121.31% |
China | $13.77 Mn | 76.98% |
Japan | $12.78 Mn | 255.07% |
United Kingdom | $3.14 Mn | 101.86% |
If we paid off the debt, there would be no need to issue Treasury bonds. Countries would find other things to invest in, and their interests would follow their investments.
Around 23% of Americans are debt free, according to the most recent data available from the Federal Reserve. That figure factors in every type of debt, from credit card balances and student loans to mortgages, car loans and more. The exact definition of debt free can vary, though, depending on whom you ask.
They stay away from debt.
One of the biggest myths out there is that average millionaires see debt as a tool. Not true. If they want something they can't afford, they save and pay cash for it later. Car payments, student loans, same-as-cash financing plans—these just aren't part of their vocabulary.
Some examples include: Business Loans: Debt taken to expand a business by purchasing equipment, real estate, hiring more staff, etc. The expanded operations generate additional income that can cover the loan payments. Mortgages: Borrowed money used to purchase real estate that will generate rental income.
This is called sovereign debt default. Most countries don't intend for this to happen because it means they may have trouble borrowing in the future. In other cases, it becomes much more expensive for defaulting governments to assume debt—the same way a consumer with a low credit score may experience.
Who is America in debt to?
Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S. This means that U.S. citizens own most of the national debt.
In December 2021, debt held by the public was estimated at 96.19% of GDP, and approximately 33% of this public debt was owned by foreigners (government and private). The United States has the largest external debt in the world.
By January of 1835, for the first and only time, all of the government's interest-bearing debt was paid off. Congress distributed the surplus to the states (many of which were heavily in debt). The Jackson administration ended with the country almost completely out of debt!
More than 50 of the poorest developing countries are in danger of defaulting on their debt and becoming effectively bankrupt unless the rich world offers urgent assistance, the head of the UN Development Programme has warned.
At the top is Japan, whose national debt has remained above 100% of its GDP for two decades, reaching 255% in 2023.
It began rising at a fast rate in the 1980's and was accelerated through events like the Iraq Wars and the 2008 Great Recession. Most recently, the debt made another big jump thanks to the pandemic with the federal government spending significantly more than it took in to keep the country running.
- Japan. Japan held $1.1 trillion in Treasury securities as of October 2023, beating out China as the largest foreign holder of U.S. debt. ...
- China. China gets a lot of attention for holding a big chunk of the U.S. government's debt. ...
- The United Kingdom. ...
- Luxembourg. ...
- Cayman Islands.
Under normal conditions, the Treasury sends Social Security payments one month in arrears. That means the check you receive in June covers your benefits for the month of May. If the debt ceiling isn't raised, the Social Security payments due to be sent to beneficiaries in June would most likely still go out.
Payment of US national debt
On January 8, 1835, president Andrew Jackson paid off the entire national debt, the only time in U.S. history that has been accomplished.
As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
Which gender has more debt?
Indeed, men carry more overall debt than women, including across most debt categories. But women carry more student loan debt and often have more credit cards. 1 We go a little more in-depth into this in the next section.
“Shark Tank” investor Kevin O'Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60. Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued.
How Many Americans Are Living Paycheck to Paycheck? A 2023 survey conducted by Payroll.org highlighted that 78% of Americans live paycheck to paycheck, a 6% increase from the previous year. In other words, more than three-quarters of Americans struggle to save or invest after paying for their monthly expenses.
Millionaires prioritize avoiding consumer debt, making wise financial decisions, and aligning spending with long-term goals.
A Millionaire's Best Friend: Compound Growth
Here's a little secret: Compound growth, also called compound interest, is a millionaire's best friend. It's the money your money makes. Seriously.