DEFINITION of 'Peak Debt'
The point at which a household or economy's interest payments become so high compared to income that a halt in spending must occur. This is followed by a period of debt reduction.
BREAKING DOWN 'Peak Debt'
The term "peak debt" is said to have been coined by Jaswant Jain, Ph.D., in 2006. Jain concluded that the debt taken on by an economy such as the U.S. economy is important to increase consumption. Debt will eventually rise to a certain exhaustion point. At this point consumption must be cut to pay the interest and debt services.
This action requires a reduction in future spending as well, which has a depressionary effect and leads to a reduction in borrowing.