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Guaranteed by the Federal Housing Administration, FHA 203(b) and FHA 203(k) loans are both types of mortgages with more flexible credit and income requirements than conventional mortgages. While the FHA 203(b) loan is the flagship loan program for homebuyers, 203(k) loans can help you buy a fixer-upper in need of significant repair. A 203(k) loan can roll repair costs into the mortgage amount. Learn more about FHA 203(b) vs 203(k) and their key similarities and differences.

Note: SoFi does not offer FHA 203(b) or FHA 203(k) loans at this time.

FHA 203(b) Loans

Often simply referred to as FHA loans, FHA 203(b) loans are mortgages for homebuyers. Current homeowners can also use FHA 203(b) loans to refinance their home loan.

What Is an FHA 203(b) Loan?

FHA 203(b) loans are insured by the Federal Housing Administration and may be more accessible to borrowers with less-than-stellar credit or a high debt-to-income ratio than conventional mortgages.

There’s lots to learn about the basics of FHA loans, but here are some highlights: You can use one to purchase a single-family home or a property with up to four units. (FHA borrowers must make the property their primary residence for at least one year.) Whatever type of property you choose, it must pass the FHA’s appraisal and inspection standards. Basically, the home must be in good condition and not require major repairs or renovations.

FHA loans come with both upfront and annual mortgage insurance premiums. The upfront cost is 1.75% of your loan amount and is collected at closing. The annual costs vary depending on your loan-to-value ratio and other factors. You’ll pay MIP (mortgage insurance) for 11 years if your down payment is 10% or higher. If your down payment falls below 10%, you’ll pay MIP for the life of the loan.

Eligibility Requirements

While FHA 203(b) loans are insured by the Federal Housing Administration, you’ll have to apply for one through a participating lender, such as a bank or credit union. Here are the eligibility requirements borrowers must meet:

•   Credit score of 500 or higher: You can qualify with a credit score as low as 500 if your down payment is at least 10%. If your down payment is lower, you generally need a credit score of 580 or higher.

•   Down payment of at least 3.5%: You must provide a minimum down payment for an FHA loan of 3.5%, but a down payment of 10% or higher can mean a lower credit score requirement and fewer years of MIP payments.

•   Debt-to-income (DTI) ratio no higher than 43%: Your DTI compares your monthly debt obligations with your income.

•   Loan size that falls within FHA limits: The limits vary by property size but currently fall between $524,225 and $1,209,750 for one-unit properties.

Property Requirements

You won’t need an inspection to obtain an FHA loan, but before a lender can issue you an FHA 203(b) loan, an official appraiser needs to check that the property meets FHA standards for safety, security, and soundness. The appraiser will check out the interior and exterior of the home and look for features such as:

•   Functional home systems and appliances

•   A well-ventilated basement or crawl space

•   Working plumbing with hot and cold water

•   A roof with at least two years of life left

•   A durable foundation with sufficient drainage

The home must meet the FHA’s minimum property standards in order to be eligible for FHA loan financing. It should also adhere to FHA flipping rules, designed to prevent borrowers and lenders from falling prey to fraud.

Found a home that needs significant work? Then you might be better off with an FHA 203(k) loan.

FHA 203(k) Loans

The FHA 203(k) loan program is geared toward fixer-uppers that need major repairs. Here are the details of FHA 203(k) loans, including how they work and their eligibility requirements.

What Is an FHA 203(k) Loan?

FHA 203(k) loans help homebuyers finance the purchase of a home and the costs of its repairs in a single mortgage. There are two types: the limited 203(k) loan and the standard 203(k) loan.

The limited 203(k) loan lets you finance up to $35,000 in your mortgage for repairs and upgrades. The standard 203(k) loan doesn’t specify a maximum limit, but it’s designed for major repairs that will cost at least $5,000.

The total property value and cost of repairs, however, must still fall within the FHA’s maximum mortgage limits. Some projects that a 203(k) loan could cover include:

•   Fix water damage

•   Perform electrical repairs

•   Repair or replace major appliances

•   Repair termite or pest damage

•   Complete unfinished renovation projects

Eligibility Requirements

The eligibility requirements for an FHA 203(k) loan are similar to those of an FHA 203(b) loan. You’ll need a credit score of at least 500 or 580, depending on your down payment size, and a DTI ratio no higher than 43%. The minimum down payment requirement is 3.5% and the loan comes with upfront and annual MIP costs.

Property Requirements

If you apply for a 203(k) loan, an official appraiser will check out the property and gather details on its interior and exterior structure. The home must be in need of at least $5,000 in repairs to qualify for the standard 203(k) loan. You generally need to complete the work within six months.

Recommended: Home Loan Help Center

Comparing FHA 203(b) and FHA 203(k) Loans

In a survey of FHA 203(b) vs. 203(k) loans you’ll see lots of similarities. Both are insured by the FHA and have less strict credit and DTI requirements than conventional mortgages. Plus, they require only a 3.5% down payment, making them accessible to homebuyers with limited funds upfront.

However, 203(b) loans are meant to help you buy a turnkey house that is more or less move-in ready. The home must meet the FHA’s minimum property standards and not have any major structural issues or damage.

A 203(k) loan, on the other hand, can be used to finance a fixer-upper that needs work. This type of loan lets you roll the repair costs into the mortgage so you don’t have to pay for them out of pocket. However, you’ll need to finish the work within a certain time frame.

Deciding Between FHA 203(b) and FHA 203(k)

A 203(b) loan is the more common choice among FHA loans. It could be a good fit if you want to buy a home or invest in a property that’s in relatively good condition. An FHA 203(k) loan, meanwhile, could make sense if you’re looking to buy a home in need of repair. Keep in mind, though, that you’ll end up paying interest on any repair costs that you roll into the mortgage. Plus, FHA 203(k) loans can have slightly higher interest rates than their 203(b) counterparts.

Recommended: Tips to Qualify for a Mortgage

Applying for FHA 203(b) and FHA 203(k) Loans

If you’ve studied an FHA loan guide and think this type of loan is for you, you can apply for an FHA 203(b) or 203(k) loan with a lender that issues these types of loans. It’s a good idea to explore your options for both FHA loans and conventional mortgages to determine which type of financing would be most affordable for you.

Lender Requirements

The lender has to abide by Federal Housing Administration criteria, but they might set even higher requirements. Some companies, for example, will only consider potential FHA borrowers with a credit score of at least 580. It could be worth shopping around to find a lender with requirements that you can meet for credit score, DTI ratio, and other financial factors.

Required Documentation

As with any type of mortgage, you’ll need to provide a bunch of documentation to get an FHA loan. This may include:

•   Income tax returns

•   W-2s or 1099s

•   Pay stubs

•   Bank account statements

•   Investment account statements

•   Identification

The lender will also run a credit check to review your credit.

Application Process

You’ll need to fill out an application for your FHA loan with your personal and financial details, as well as information on the property and your down payment amount. After submitting the application, you’ll likely encounter the following steps:

•   Schedule an appraisal: An FHA-approved appraiser will evaluate the property and determine its market value.

•   Wait for loan underwriting: The lender will verify your information and process your loan. You may be asked to submit additional information or documentation during this time.

•   Close on your loan: Once everything goes through, you can close on your loan, provide your down payment, and move forward with purchasing your new home.

If you’re applying for an FHA 203k loan, you may need to work with a consultant, who will estimate repair costs for the home. Working with a licensed contractor who understands the 403k loan requirements may also be part of the process. Once the work is finished, the consultant will evaluate the project to ensure it meets FHA standards.

The Takeaway

FHA loans can be a useful financing option for homebuyers who may not be able to meet the credit and DTI ratio requirements for a conventional mortgage, though they do come with mortgage insurance premiums that can increase the cost of borrowing. A 203(b) loan can help you purchase a move-in ready home, while a 203(k) loan can be used to finance renovations and repairs.

FAQ

Can I use an FHA 203(k) loan for a new construction home?

FHA 203(k) loans can only be used for properties that are at least one year old.

Are there limits on the renovation costs for an FHA 203(k) loan?

With a limited FHA 203(k) loan, homebuyers can finance up to $35,000 in their home loan to repair their home. A standard 203(k) loan, on the other hand, can finance major rehabilitation and repairs as long as the costs are at least $5,000. The total cost of the loan and renovation cannot exceed the FHA Maximum Loan Limit which in 2025 is $524,225 for a single-family home in most places.

Are interest rates different for 203(b) and 203(k) loans?

FHA 203(k) loans typically have interest rates that are about 0.75% to 1.00% higher than standard FHA loans, according to The Mortgage Reports.

Photo credit: iStock/andresr

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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SOHL-Q324-020

Homebuyers who want modern touches and few maintenance worries may opt to purchase new construction or have a home built to order.

In mid-2024, the median price of a new home was $429,800, according to the U.S. Census Bureau. As homebuyers have found a shortage of existing homes on the market in recent years, new-home construction has worked to fill the gap and consumers may find builders offering incentives to choose new construction. You’ll want to understand the market and learn some of the lingo.

Understanding New Construction Homes

On the upside, newly constructed homes can come with warranty-backed electronics, energy efficiency, and high-end features.

But new construction isn’t without potential snags, such as construction delays and the mounting price of upgrades.

The type of new construction you choose will determine cost and ability to customize and may also affect your home loan options.

•   Tract homes. These go up in a builder’s new development. The buyer chooses the lot and design features.

•   Spec homes. These are move-in-ready homes, but the buyer still might be able to choose some of the finishings. It’s a good idea to understand the difference between standard property features and upgrades.

•   Custom homes. A builder tailors a house to the buyers’ specifications on their land.

How Do I Buy a New Construction Home?

A first step is to get preapproved for a mortgage and hire a real estate agent. You’ll choose a builder, go over your desired home features, and sign the builder contract, which will include the anticipated timeline, the cost, and all other details.

Mortgage options for a tract or spec home are the same as buying an existing home: conventional or government-backed home loans.

Those who are building a custom home might use a construction loan for the build and then obtain a mortgage once the home is complete. There are, however, FHA, VA, USDA, and conventional construction-to-permanent loans, also called single-close loans.

Figuring Out the Costs of New Construction

How much does it cost to build a new house? For 2,500 square feet, it could cost $345,000, but of course, there are lots of variables, including location, the price of labor and materials, and your tastes.

For a spec home, it might be a good idea to look at comparables in your area. For a new build, HomeAdvisor suggests budgeting the amount each project of the home requires as well as the necessary time to build.

In normal times, expect to spend about 50% of your budget on materials, HomeAdvisor says.

Buying a staged model house? The upgrades are considered marketing costs, and the home may have been walked through many times. You might have lots of room to negotiate.

Pros and Cons of Building or Buying a New Construction Home

Buying new has its pros and potential cons.

Pros

Everything’s New. Novelty can be a lure all its own. From a practical standpoint, new items signal less maintenance for years.

Additionally, with a from-scratch property, homebuyers may also be able to build their house on the precise plot of land that they want. Buying an existing home could mean having more neighbors nearby or less choice about the size or borders of the property.

Warranties. Appliances, roofing, and the HVAC system may be covered by manufacturer and construction warranties. Replacement or repair may be guaranteed for years, which can be a big relief when buying new construction as opposed to buying an existing home. Ask most homeowners about typical home repair costs. They are the opposite of fun.

Energy Efficiency. Homebuilding has been moving toward energy efficiency, or green architecture. Features like solar panels, treated windows, efficient lighting, and energy-saving appliances curb home energy expenses over the life of owning a home.

Reduced Homebuyer Competition. If a buyer opts to build a new home on an undeveloped tract of land, chances are low that a competing homeowner wants to build in that exact location at the same time.

Benefitting From Buying Discounts. A local contractor has ties to building supply companies and hardware stores. These business-to-business connections may translate into lower costs.

Cons

Land-Starved Locations and Zoning. The denser a community — think a big city or large suburb — the harder it may be to find land to build on. Moreover, local zoning regulations often regulate the size and type of new homes that can be built on residential lots.

Potential Building Delays. It takes 7 to 12 months on average for a contractor to build a house, and 12.1 months for an owner to, according to census data. That’s a significant wait, but building delays are fairly common and add to the bottom line. If a homebuyer needs to rent, for instance, while the house is being constructed, any delays could mean extra housing expenses.

New-home buyers can prepare for changes by touring similar finished homes in the community, researching the builder’s reputation, and speaking to residents. It’s also a good idea to talk with the builder about common construction delays and how unexpected costs are handled.

Negotiating Price May Be Harder. When working with a homebuilding company, negotiating may not be possible. Many builders attach a minimum price to the construction of a new home.

Upgrades Add Up. If wood floors, glass-front cabinets, and premium tile are must-haves, be prepared to pay for them. There is usually a “starting-from” price attached to newly constructed homes. Upgrades can add substantial costs to a new home.

Buying Tips for Newly Built Homes

Prepare to breathe in that new-house smell, but first lay the foundation.

Line Up Financing

When it comes to buying any type of house, getting prequalified is good. Getting preapproved is more serious, because you will have let lenders vet your finances and give you a specific amount you qualify for.

Lenders can also recommend the best kind of financing for a new build.

Hire a Real Estate Agent

Homebuyers wanting to make a new dream home a reality may want to find a good real estate agent. Here’s one reason why that’s important: The sales contact from the home construction company is hired to represent the seller (i.e., the builder or developer). A buyer’s agent can champion buyers’ interests, negotiate the contract, and answer questions.

Ask for Builder Concessions, Sign the Contract

Homebuyers aren’t likely to get a builder to slash a new home’s sales price, but they might be able to gain some concessions. Some builders may offer upgrades at a reduced price to incentivize a homebuyer to buy.

Upgrades may come in the form of a higher grade of carpet, granite countertops, a more advanced HVAC unit, or higher-end kitchen appliances. It doesn’t hurt to ask.

Once you’re pleased with your decisions, you’ll sign the builder contract to buy a spec home or start construction on a home.

The Takeaway

Newly constructed homes have obvious appeal, but they can come with potential delays and other drawbacks. Buyers who have their heart set on a brand-new home will find that financing often works the same way as it does for an existing-home purchase.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Can you negotiate the price of a new construction home?

Negotiating the price of a new construction home can be challenging as many builders set a minimum price. However, it might be possible to negotiate upgrades or concessions instead of a price reduction. Homebuyers can work with a real estate agent to help them negotiate with the builder.

What is a realistic budget for building a house?

A realistic budget for building a house will vary depending on the location, size, and desired features. In general, a 2,500 square foot home requires a budget of around $345,000, not including the cost of land. But cost can increase or decrease depending on the specific materials and finishes chosen.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q324-056

A relatively new term, money dysmorphia is when someone’s perception of their finances doesn’t align with reality, such as feeling financially insecure even when they’re managing their money well. They may feel as if they can’t keep up with their peers when they are actually on a solid financial footing. Almost one in three (29%) of U.S. consumers reported this outlook in a December 2023 survey by Credit Karma.

Money dysmorphia can be problematic because having a distorted view of your financial standing can lead you to make unwise financial decisions. It can also exacerbate financial and overall anxiety. For this reason, it’s wise to become familiar with the symptoms of money dysmorphia, as well as how to deal with its impact.

Defining Money Dysmorphia

Money dysmorphia is defined as perceiving your financial status to be different from and worse than reality. It borrows from the term “body dysmorphia,” a mental health condition in which a person has anxiety over perceived physical faults, when in reality those “faults” are minor or unrecognizable to others.

Money dysmorphia is often tied to a “keeping up with the Joneses” or FOMO (fear of missing out) viewpoint. For example, you might be earning a solid income, have a tidy sum in your bank account, and be paying down your student debt, but when you scroll through social media, your perception becomes skewed. You might see images of what looks to be the entire world, minus you, living it up on the French Riviera. By comparison, your life seems inadequate.

This is money dysmorphia in action. It hits younger generations especially hard, with 43% of Gen Zers and 41% of Millennials experiencing this issue.

Signs and Symptoms of Money Dysmorphia

How do you know if you are among the ranks of those with money dysmorphia? Here’s a look at some common signs of money dysmorphia.

•   You tend to underspend. Money dysmorphia can make you feel poor in comparison to others — as if you’re barely getting by. You might adopt stringent measures to stop spending money and thereby build wealth. If you are avoiding many or all social events or swearing off vacations (including that favorite weekend getaway with your BFF), even while you have adequate spending money available, you could have money dysmorphia.

•   You often overspend. The opposite behavior can also be true. Some with money dysmorphia may respond to feeling poor by overspending. For instance, if you see that many people your age on social media are shopping for status watches or handbags, you might drop a chunk of change on one to feel part of the (rich) club, even if that means you can’t put money in your retirement account for a while.

•   You have trouble making financial decisions. Money dysmorphia can also paralyze you in terms of making financial decisions because your money status isn’t clear. Perhaps you’ve changed jobs and need to earmark a percentage of your earnings to go into a retirement account. With money dysmorphia, you may feel unable to know how much to save because you’re so unsure of your financial picture.

•   You feel stressed or embarrassed about your financial situation. Money anxiety and stress, as well as feelings of inadequacy, can be a big part of money dysmorphia. If you feel as if everyone is doing better than you, financially speaking, and that you’ve failed to “make it,” even when you are objectively doing fine financially, that is a symptom.

Recommended: How to Make a Budget

Causes and Contributing Factors

Here’s a closer look at which forces can conspire to trigger money dysmorphia.

Psychological Influences

There’s no doubt that the topic of money in and of itself can be stressful. In an April 2024 MarketWatch survey, 88% of respondents reported some degree of financial stress, and 65% (almost two out of three) said finances are their single biggest source of anxiety.

What’s more, focusing on which people have how much money can stir up many other emotions. Feelings of inadequacy, worries about one’s future, along with concerns about self-control and spending can all feed into money dysmorphia.

Social and Cultural Factors

Social media and reality TV can be a key driver of money dysmorphia by constantly showing curated images of luxury, abundance, and financial success. Constantly seeing this type of content can make you feel as if you’ve fallen short, despite the hard work you’ve put into your career and the successes you’ve achieved. Even just checking in on your friends and family through social media may make you feel that others have more and are living better lives than you are.

Personal Experiences

You might have experiences in your past that make you particularly vulnerable to money dysmorphia. Maybe you grew up in a family with limited resources, so now you feel compelled to show off your wealth. Or perhaps your family had money then lost it, and you went from feeling secure to feeling as if everyone was richer than you.

Experiences in adulthood can also feed into money dysmorphia. Maybe you started your own business and it failed or you got laid off from your first job. Even if you now have a steady income, those experiences could make you feel as if you are always struggling and everyone else is doing better than you financially, even when that’s not the case.

Recommended: What Are Fixed vs Variable Expenses?

Impact of Money Dysmorphia on Financial Behavior

As noted above, money dysmorphia can alter your financial behavior in significant ways. For some, it leads to excessive scrimping and saving due to a sense of feeling poor and wanting to hold as much money as possible. While this can produce positive behaviors (like opening a savings account to stash as much cash as possible), hoarding funds can also result in missing out on life’s pleasures.

Money dysmorphia can also trigger the opposite problem — spending more than you can afford in an effort to keep up with your peers or due to a constant fear of missing out. Blowing your savings on a status buy could make you feel rich in the short term, but make it impossible to stick to a budget and result in steep credit card debt.

Having a distorted view of your financial picture can also cause you to make poor financial decisions. For example, if you can’t tell if you’re doing okay or going broke, you might not feel you can contribute toward an emergency fund. Not socking away money in that kind of account could be a liability down the road.

Strategies for Managing and Overcoming Money Dysmorphia

If, as you read about money dysmorphia symptoms, you’re thinking, “That’s me!”, here’s advice to help you handle the situation.

Limiting Social Media

Taking a break from social media, reducing the time you spend online, or weeding out accounts that make you feel financially inadequate can help with money dysmorphia. You might adopt one of these habits for a specific period of time, such as two weeks, and then see if you even miss that content.

You might also make some changes in who you socialize with offline. If you have friends who spend lavishly, you can get sucked into a game of keeping up. You might decide to go out to dinner with big spenders only a few times a year and otherwise meet up with them for more wallet-friendly activities, like a free concert or walk in the park.

Seeking Professional Help

Working with a finance professional can be a good way to get clarity on your financial situation and potentially help you resolve money dysmorphia. You can get an unbiased opinion of how well you are budgeting, saving for the future, and managing debt, as well as tips on enhancing your efforts, if needed.

Alternatively, you might decide to see a therapist or psychologist to work on emotional issues related to money. Another option is to work with a financial therapist, who blends knowledge of personal finance and human behavior to work on overcoming money dysmorphia, achieving financial discipline, and other issues.

Developing Healthy Financial Habits

Honing your financial habits may also help you avoid or overcome money dysmorphia. A good start is having a budget that works for you. There are many budget techniques and tools to help you understand how much money you have coming in, where it goes, and how to balance your finances. A good budget can clearly spell out how much money you have available for discretionary spending (“fun” money). It may also help you realize just how well you are doing financially or allow you to see that your goals are within reach.

You can create a budget and track your spending with pen and paper, or you might download a budgeting and spending app to your phone to simplify the process.

The Takeaway

Money dysmorphia occurs when a person feels as if their financial situation is different from the reality. For example, if you are earning a steady income and saving for the future but see lots of millionaires living it up on social media, you might feel as if you are struggling financially in comparison. This can lead to issues such as overspending to keep up, being miserly in an effort to build wealth, or being unable to make financial decisions. Fortunately, a few smart strategies can help you manage or overcome money dysmorphia and find your financial footing.

Having the right banking partner can also help you track and grow your money and feel more confident about your finances.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How do I know if I have money dysmorphia?

Signs of money dysmorphia include overspending to “keep up with the Joneses” or economizing too much because you think you are financially unstable compared to others. You might also have anxiety and uncertainty about your financial standing, which can cause you to miss out on opportunities that would help you build wealth and secure your future.

Can money dysmorphia be treated?

Yes, money dysmorphia can be treated. You can work on adopting healthy money habits (which could include avoiding social media, a possible trigger for money dysmorphia) and/or seek help from a financial advisor or therapist to move past this issue.

What resources are available for those struggling with money dysmorphia?

If you are struggling with money dysmorphia, you might benefit from working with a financial planner to help you budget and save wisely. This process can also help you track your progress, which can be reassuring. Or you might work with a mental health professional or financial therapist to explore the emotional underpinnings of your money dysmorphia and develop coping strategies.

Photo credit: iStock/Riska

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SOBNK-Q324-034

Doom spending is spending money to cope with stress when the future seems uncertain or troubling, such as when the economic or political outlook appears grim. For example, a person might be feeling anxious about how high their housing costs are and what will happen in an upcoming election. To distract themselves from these worries, they might splash out on a special sushi dinner, concert tickets, or new clothes. The thinking here? “What’s ahead looks dicey; I might as well enjoy myself now.”

If you can relate to this, read on to learn more about the causes of doom spending and how not to let it harm your financial standing.

Understanding Doom Spending

Doom spending is a phenomenon in which people may overspend in response to stressful times. For instance, when the world is filled with political and economic uncertainty, consumers (especially younger ones) may feel there’s no point in saving. A voice inside their head may ask, “Why bother?” Instead, they decide to live in the moment and go shopping as a distraction and mood lifter.

A November 2023 survey by Qualtrics on behalf of Credit Karma found that 27% of all Americans engage in doom spending, and it’s especially prevalent among younger adults. In fact, 43% of millennials and 35% of Gen Zers admit they have spent money in this way.

Financial experts say these generations may be especially vulnerable to feelings of hopelessness and doom spending, as they came of age in a time of economic uncertainty and are living in an era with high housing costs, massive student debt, and considerable inflation (consumer prices rose approximately 20% between January 2020 and January 2024). Many may find that they currently have a lot less in their bank accounts that they’d like.

While there is nothing wrong with occasional rewards, doom spending can result in credit card debt and a reduced ability to save for the future. In the Qualtrics/Credit Karma study, about one-third of Americans reported an increase in debt in the past six months, and nearly half said the amount of money they’re saving has gone down.

Recommended: What Are Fixed vs. Variable Expenses?

Psychological Triggers Behind Doom Spending

Here’s a closer look at some of the causes of doom spending.

Stress and Anxiety

Stress and anxiety can trigger doom spending, and there’s little doubt that they are rampant right now. According to the American Psychological Association (APA), many people in the U.S. have been negatively impacted by the trauma of the pandemic, global conflict, racial injustice, inflation, and environmental challenges around us. All of those issues can swirl together and create a feeling of future doom.

According to a June 2024 Axios Vibes/Harris Poll survey, a majority of millennials and Gen Zers agree that it is better to treat themselves now rather than hold off for a future “that feels like it could change at any moment.”

Impulse Control Issues

Shopping can bring joy in a few different ways. Research has shown that purchasing an item you desire can empower you with a sense of control. It can also flood your brain with dopamine, a “feel good” neurotransmitter.

When people feel that the future is gloomy, they may crave that “feel good” flood even more and, therefore, easily give in to impulse purchases. Spending money in this way can be a relief and a release. It’s a distraction that lets you treat yourself and temporarily escape your worries.

Societal and Peer Pressure

Social media can exacerbate doom spending by driving you to spend money to “keep up with the Joneses.” It can also lead to FOMO (fear of missing out) spending and YOLO (you only live once) spending.

Because the future seems cloudy and so expensive, you may not bother to plan for it. Instead, you might follow a friend’s, coworker’s, or social media influencer’s lead and spend money on the latest trendy purchase or experience. It can create a feeling of belonging and help you escape all the doom-driven anxiety.

Recommended: Financial Planning Tips for Young Adults in Their 20s

Consequences of Doom Spending

The consequences of doom spending can be mild or more significant, but typically include the following:

•   Blowing your budget. Additional spending can make it hard to stick to a budget. If you’re buying more non-essentials, you may come up short when it’s time to make your student loan payment. Or you might have to stop contributing to your retirement plan so you can make ends meet.

•   Credit card debt. Credit card debt in the U.S. reached a record high in the second quarter of 2024 (hitting $1.142 trillion). That’s a whole lot of swiping and tapping going on, and doom spending may be a contributing factor. Shopping with credit cards can feel as if purchases don’t cost anything since no hard cash changes hands. But if you go overboard with doom spending, you may get an eye-watering bill. Given today’s ultra-high credit card interest rates (currently averaging over 20%), it can be hard to get out from under credit card debt once it starts racking up.

•   Ability to save. When you spend money on fun treats and impulse purchases to relieve stress and buoy your spirits, it may well be “borrowed” from money you were going to save. Whether those dollars were earmarked for an emergency fund, retirement account, the down payment on a house, or other purpose, doom spending can set you back in terms of your short- and long-term financial goals.

•   Increased stress. Knowing that you’ve overspent can heighten the anxiety you are already feeling. Many people feel guilty about spending money, and a doom-triggered spending spree can create more worries about your financial future.

Strategies To Manage and Prevent Doom Spending

If you’ve been doom spending (or tempted to), these strategies can help you reign in the impulse.

Setting a Budget

A good budget helps organize your money and keep your spending on track; it can provide guardrails for how your income will be spent and saved. There are many different types of budgets, so you may need to experiment to find the method that works best for you. One popular approach is the 50/30/20 budget rule, which says that 50% of your take-home pay should go to needs, 30% to wants, and 20% to savings and/or additional debt payments. With a budget like this in place, you know just how much (30%) can go toward fun expenditures and can stick to that figure.

Once you determine how much you want to put towards savings each month, it’s a good idea to set up an automated transfer from your checking account to your savings account for the same day each month (perhaps right after you get paid). That way, the money gets whisked away and won’t sit there, tempting you to spend it.

You can set a budget and track your spending with pen and paper, or you might want to download a budgeting and spending app to your phone to simplify the process.

Self-Control Techniques

Being aware of what triggers you to doom spend can help you stop. For example, if you know you tend to shop on Sundays when you start feeling anxious about the week ahead and life in general, fill your calendar. You might set up a standing date to go walking or running with a friend or take on a volunteer gig or side hustle so you are too busy to spend.

Many people impulse buy online or on social media. If you tend to overspend in this way, consider disabling one-click shopping. It’s also a good idea to delete your credit card details from your devices — that way, it won’t be so easy to mindlessly spend while scrolling.

Recommended: How to Stop Spending Money

Seeking Professional Help

If you feel your doom spending isn’t yielding to the above techniques, you might want to enlist the help of a professional. A financial planner could help with budgeting or a therapist could guide you to uncover and address the emotional aspects of your spending.

A financial therapist could also be helpful. They merge money know-how and an understanding of human behavior to resolve issues such as doom spending.

The Takeaway

Doom spending is a way of coping with stress by spending money. When you feel as if the world is uncertain and anxiety-provoking, you may find relief by shopping. But this can negatively impact your finances and create more money worries. Fortunately, there are several strategies that can help you control doom spending and stick to a budget.

The right banking partner can also help by giving you tools to help you track and grow your money.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are the common signs of doom spending?

Common signs of doom spending include:

•   Making impulsive purchases in response to feeling stressed or anxious about the future

•   Feeling temporary relief or pleasure after spending but later regretting the purchase

•   Frequently buying things you don’t need

•   Neglecting to save for the future

How can I break the cycle of doom spending?

Here’s a look at some strategies that can help you break the cycle of doom spending:

•   Create a monthly spending budget.

•   Set up a recurring monthly transfer from checking to savings.

•   Uncover your spending triggers and work to avoid or eliminate them.

•   Practice mindful spending by pausing before each purchase and assessing if it’s truly necessary.

•   Seek alternatives for stress relief, such as exercise or hobbies, to replace spending as a coping mechanism.

•   Work with a financial advisor or psychologist/therapist

Are there tools or apps to help manage spending habits?

Yes, there are a number of online tools and apps that can help you manage your spending habits, set up a budget, and monitor financial goals. Popular options include YNAB (You Need a Budget), Goodbudget, and EveryDollar. You might also check with your bank to see what tools they offer to track and organize your finances.

Photo credit: iStock/YakobchukOlena

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBNK-Q324-033

If you’re looking for a safe place to invest and grow your money, you might be considering both certificates of deposit (CDs) and U.S. Treasury bills (T-bills). Both investment options offer steady and predictable returns, while protecting your principal. However, there are some key differences between them, including how long you need to lock up your money, initial investment requirements, and how your earnings will be taxed. Read on for a closer look at T-bills vs. CDs.

What Is a Certificate of Deposit?

A certificate of deposit, commonly referred to as CD, is a type of savings account offered by banks and credit unions. You can also get CDs through brokerages, called brokered CDs, though these are still issued by banks. When you open a CD, you deposit a set amount of money into the account and agree to leave it there for a specific period of time, which generally ranges from three months to five years.

CDs pay a fixed interest rate that is typically higher than the average annual percentage yield (APY) for savings accounts. If you withdraw your money early, however, you will likely have to pay a penalty, often in the form of interest earned over a certain time period.

Like other types of savings accounts, CDs are insured, which means you get your money back in the unlikely event your bank goes bankrupt. CDs at banks insured by the Federal Deposit Insurance Corporation (FDIC) are typically covered up to $250,000 per depositor, per ownership category, for each insured bank. Co-owners of joint accounts at the same bank are typically each insured up to $250,000. Credit unions offer similar insurance through the National Credit Union Administration (NCUA).

Pros and Cons of CDs

CDs come with a number of benefits, but also have some drawbacks. Here’s a look at some of the top reasons you might or might not want to invest in a CD.

Pros

•   Guaranteed returns: CDs offer a fixed interest rate, so you know exactly how much you will earn by the end of the term. Even if market interest rates go down, your CD rate will stay the same.

•   Safety: As FDIC- or NCUA-insured products, CDs provide a high level of security, protecting your principal up to $250,000.

•   Higher interest rates: CDs typically offer higher interest rates than traditional savings accounts, which can help your money grow faster.

Cons

•   Limited liquidity: Funds invested in a CD are locked in for the entire term of the CD. If you need to access your money before the CD matures, you will typically incur a penalty, which can eat into your earnings.

•   Could potentially earn more: While guaranteed, the returns on a CD can be lower than what you might earn with more aggressive (aka, higher-risk) investments like stocks or bonds.

•   Inflation risk: If the interest rate on your CD doesn’t exceed, or even keep up with, the rate of inflation, the actual purchasing power of your money can erode over the term of the CD.

What Are U.S. Treasury Bills?

Another safe way to invest your money is to buy U.S. Treasury bills. Also called T-Bills or Treasuries, Treasury bills are short-term government securities issued by the U.S. Department of the Treasury. Treasuries are backed by the full faith and credit of the U.S. government and considered one of the safest investments available.

When you buy a T-bill, you pay less than the bill’s face value, which is the amount you will receive at maturity. The difference between the purchase price and the face value at maturity is your interest earned. You’ll owe federal taxes on any income earned, but no state or local tax. T-bills are considered short-term securities because they mature in four weeks to one year.

Pros and Cons of Treasury Bills

Like CDs, Treasuries come with both benefits and drawbacks. Here are some to keep in mind.

Pros

•   Safety: T-bills are backed by the U.S. government, making them virtually risk-free if held until maturity.

•   Predictable returns: Returns are guaranteed, based on the agreed-upon rate of the Treasury bill that you purchase.

•   Tax benefits: The interest earned on a U.S. Treasury bill is exempt from state taxes, which can be a significant advantage for investors in high-tax states.

Cons

•   Lower returns: While safe, the returns on T-bills are generally lower than what you can potentially earn by investing in the market over the long term.

•   Inflation risk: Like all fixed-rate investments, if the rate you earn on your T-bill doesn’t exceed the inflation rate, the actual purchasing power of your money will diminish over the term of the Treasury.

•   Market risk: While treasuries are stable, their value can fluctuate over time. If you sell before the T-bill reaches maturity, you may not get as much interest as you expected.

Recommended: 7 Places to Put Your Cash

Comparing CDs vs Treasury Bills

While CDs and Treasury bills have a number of similarities, there are also some key differences that you’ll want to understand before investing in either one. Here’s a closer look.

Tax Implications

One key difference between CDs and Treasuries is that interest on CDs is taxable at the federal and state level. Treasuries, on the other hand, are exempt from state income tax. If you are investing in a taxable account and live in a state with a high income tax, this can make investing in Treasuries attractive.

Another tax difference: With CDs, you pay taxes on interest earned the year it is added to the account, whether you cash out the CD or not. With Treasuries, the interest you earn is only taxable when you sell the T-Bill, which may be a different tax year than the year in which you bought it.

In both cases, the interest you earn will be reported on Form 1099-INT.

Expected Earnings

With both a CD and a Treasury bill, you’ll know beforehand how much interest you’ll earn if you hold it until its maturity. If you sell a CD early, you may forfeit some or all of your expected interest and also possibly pay a penalty. Selling Treasury bills before they reach their maturity may be possible (since there is a secondary market for them) but if you do, you may not earn all the interest you would earn if you held it to its maturity.

Other Key Details to Consider

When deciding whether to put your money in T-bills or CDs, here are some other factors to keep in mind.

•   When you’ll need the money: T-Bills are more liquid than CDs since they typically have shorter maturities and can be sold on the secondary market. If you need access to your funds quickly, T-Bills may be the better option. While you can sell a CD before maturity, doing so typically incurs a penalty that can reduce your returns.

•   Initial investment amount: The minimum investment for opening a CD varies by bank but is typically at least $500. The minimum purchase amount for Treasury bills is $100. A higher initial investment requirement could make opening a CD difficult if you are just starting out and don’t have a lot of extra cash to invest.

•   Interest rate environment: While T-bills and CDs generally offer comparable rates, you may want to consider time to maturity and where interest rates could be headed. If interest rates are expected to fall, for example, locking in a good rate on a multi-year CD could be a smart move.

How To Purchase CDs and Treasury Bills

You can buy CDs directly from banks and credit unions, either online or in-person. Rates and terms vary by institution, so it’s generally a good idea to shop around to find the best CD for your needs. You typically don’t have to have an existing account at a bank or credit union to open a CD.

You can purchase Treasuries either through a brokerage firm or directly from the U.S. Department of the Treasury at TreasuryDirect.gov. The most commonly offered maturity dates are four weeks, eight weeks, 13 weeks, 17 weeks, 26 weeks, and 52 weeks. T-bills are sold in increments of $100, and the minimum purchase is $100.

Similar Investments to Keep in Mind

If you are looking for a relatively safe place to park your savings and earn a decent return, there are other options besides T-bills and CDs. Here are some to consider.

•   Series I savings bonds: I bonds are a type of U.S. savings bond with an overall rate that is based on both a fixed rate that never changes and a variable interest rate,designed to keep up with inflation, that resets every six months. You need to hold the bond for at least one year and will pay a penalty if you cash out before five years. Like T-bills, interest payments are exempt from state taxes.

•   Money market fund: A money market fund is a type of mutual fund that invests in CDs, short-term bonds, and other low-risk investments. The money you invest is liquid, and yields are typically higher than regular savings accounts. However, the funds are not protected by the FDIC or NCUA.

•   High-yield savings account: While not technically an investment, high-yield savings accounts pay more than the average APY for savings accounts, while offering more liquidity than CDs or T-Bills. Your money is insured, but the APY on a high-yield savings account isn’t fixed, meaning it can rise or fall depending on market rates.

The Takeaway

CDs and Treasury bills are both considered safe investments, allowing you to earn a guaranteed return without putting your initial investment at risk. However, there are some key differences that can make one a better fit than the other.

T-bills often have shorter terms than CDs, making them a good option for a savings goal that is a year or less down the road, like buying a car. With some terms as long as five years (or more), a CD may work better for a longer-term savings goal, such as making a downpayment on a home. If you’re looking for safety and competitive returns along with liquidity, you might also consider putting your money in a high-yield savings account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are CDs and Treasury bills considered safe investments?

Yes, both certificates of deposit (CDs) and Treasury bills (T-bills) are considered safe investments. CDs offer a fixed interest rate over a specified term, and are typically insured up to $250,000, making them low-risk. Treasury bills are short-term government securities backed by the U.S. government, making them one of the safest investments available. They are sold at a discount and mature at face value, with the difference representing the investor’s interest. Both options can be ideal if you’re a conservative investor seeking minimal risk.

Should I keep my emergency fund in a CD or Treasury Bill?

You generally want your emergency funds to remain highly liquid and easily accessible, so a regular savings account can work better than a certificate of deposit (CD) or Treasury bill.

CDs usually require you to leave your funds untouched for a fixed term, with penalties for early withdrawal. Treasury bills also tie up your money, though terms are relatively short (typically four weeks to one year). A Treasury bill might work for an emergency fund if you have other funds you can tap in a pinch before the maturity date. Otherwise, consider keeping your emergency cash in a high-yield savings account or a money market account.

How do CDs and Treasury bills differ from savings bonds?

Certificates of deposit (CDs), Treasury bills, and savings bonds are all low-risk investments, but there are some key differences between them.

•   CDs offer fixed interest over a specific term, and are typically used for short- to medium-term savings goals.

•   Treasury bills are short-term government securities that mature in a year or less and are sold at a discount.

•   Savings bonds, such as Series I and EE Bonds, are long-term government bonds with interest that compounds semi-annually. They are generally intended for long-term savings goals, such as education or retirement.

Photo credit: iStock/Liudmila Chernetska

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOBNK-Q324-012