The countries debt was in the millions because of the american revolution and specifically owed money to foreign government, private citizens, and soldiers payment for their service.
The national government was responsible for 2/3rds of the national debt.
South's Feeling about Hamilton's Plan
States were responsible for the rest of the national government's debt.
He proposed that the government assume the entire debt of the federal government and the states. His plan was to pay foreign debt, issue new bonds to replace the old, and proposed that the federal government should assume the state debt.
In exchange for southern votes, Hamilton promised to support locating the national capital on the banks of the Potomac River, the border between two southern states, Virginia and Maryland.