This paper examines how the steady-state debt-to-GDP ratio shapes the transmission of fiscal and monetary policy shocks in a tractable heterogeneous-agent New Keynesian model. When households value government debt for its liquidity services for self-insurance, higher debt levels amplify the adverse fiscal consequences of expansionary government spending shocks. With debt already high, fiscal expansions require the central bank to maintain higher real interest rates for longer to sustain liquid-asset demand and clear bond markets, raising debt servicing costs and reducing fiscal space. By contrast, the transmission of monetary expansions is largely insensitive to steady-state debt levels. The results highlight the crucial role of the liquidity premium and self-insurance motive in shaping the interaction between initial public indebtedness and debt sustainability.