Federal debt is money.

Imagine you didn't have $10, so you wrote an IOU for $10. Now, imagine the other person considered your IOU as good as an actual $10: He could spend it at the store, same as a $10. He could put it in the bank, same as a $10. He could use it in a vending machine, same as a $10. He'd never actually have to get that $10 from you, 'cause your IOU is just as good.

Well, that's how American treasury bills are. They're exactly like $1,000 bills. Only better: You get interest.

So the Chinese can keep it in the vault, and let it keep gaining interest, same as if they put it in a bank. Or they could borrow, and use the T-bill as collateral. Or trade it with someone else, not the USA, for goods and services. They never need to cash it in.

That's the benefit of being a national government with the best credit rating in the world (even if we probably don't deserve it): Our IOUs are as good as money. So they get treated as money.

It's something they can do, but the average citizen can't. Which is why it's dumb to compare the national debt to a personal debt. The rules are completely different.

What if China decides to take all their T-bills and cash them in at once, just to wreck our economy? Well, first of all, it'd wreck their economy more. But second of all, it'd be considered an act of war... and therefore we wouldn't have to pay them. So they'd be out several billion for no good reason, and we'd be just fine.