Peak Debt


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.


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.

  1. Debt-To-GDP Ratio

    The ratio of a country's national debt to its gross domestic ...
  2. Doubtful Loan

    A loan where full repayment is questionable and uncertain. Degree ...
  3. Debt Load

    The amount of debt or leverage that a company is carrying on ...
  4. Standard Of Living Bubble

    The concept of consumers living beyond their means for an extended ...
  5. Debt Deflation

    A situation in which the collateral used to secure a loan (or ...
  6. Debt Fatigue

    When a debtor stops making payments on his or her debts and starts ...
Related Articles
  1. Bonds & Fixed Income

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  2. Taxes

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  3. Budgeting

    Current Account Deficits: Government Investment Or Irresponsibility?

    Deficit can be a sign of trouble for some countries, and of health for others. Find out what it means when more funds are exiting than entering a nation.
  4. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  5. Options & Futures

    Top 7 Most Common Financial Mistakes

    Choose fortune over disaster by avoiding these money traps.
  6. Retirement

    Why Are Annuities Important for Retirement?

    Understand how annuities work, and identify the benefits they provide for retirement, the most salient being a guaranteed income stream for life.
  7. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  8. Professionals

    How to Create a Retirement Co-Op in Your Community

    As the retirement boom continues, retirement co-ops are growing in popularity. Here's how to set one up in your community.
  9. Insurance

    The 4 Best Alternatives to Long-Term Care Insurance

    Understand what long-term care insurance is and the types of people who need this coverage. Learn about four alternatives to long-term care insurance.
  10. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  1. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  2. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  3. What are the biggest disadvantages of annuities?

    Annuities can sound enticing when pitched by a salesperson who, not coincidentally, makes huge commissions selling them. ... Read Full Answer >>
  4. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  5. How can I determine if a longevity annuity is right for me?

    A longevity annuity may be right for an individual if, based on his current health and a family history of longevity, he ... Read Full Answer >>
  6. Can your life insurance company sue you?

    A life insurance company generally cannot sue you, but it can sue your estate. The company may do this in order to recover ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!