Sleepless and Broke: Which Comes First?

Most of us are aware that poor sleep has a detrimental impact on our health. But according to research by the University of Virginia and the University of Southern California, it may also damage your financial well-being.

Their study, published on SSRN, finds that borrowers who apply for loans early in the morning — a time when fatigue is most likely to cloud judgment — are more likely to fall behind on those loans later.

The cycle may also run in the other direction. According to the American Psychological Association, financial stress is well known to disrupt sleep, creating a vicious cycle in which exhaustion and financial troubles can reinforce each other.

Lack of sleep and debt decisions don’t mix

Researchers analyzing thousands of online loan applications found a striking pattern: applicants in the morning were significantly more likely to default later, compared with those applying later in the day.

The authors note that this effect aligns with what lab studies have long shown: sleep deprivation has its sharpest impact on decision-making in the hours immediately after waking.

Why tired brains make bad choices

Instead of carefully weighing terms, sleep-deprived people tend to rely on shortcuts. They request round numbers, accept riskier loan amounts, and lean on gut feelings rather than deliberate planning, according to the University of Virginia study.

Importantly, the higher default rates were not caused by lenders charging worse terms. Interest rates and pricing remained unchanged. The problem came from borrowers’ own impaired decisions.

What science says about sleep and risk

This field evidence matches a growing body of laboratory research. An experimental study published in Nature and Science of Sleep found that sleep-restricted participants showed less sensitivity to negative feedback and more impulsivity when faced with risky financial choices.

Research from the University of Zurich reported that just one night of poor sleep can lower risk aversion and encourage people to take on riskier bets.

The poverty trap connection

The University of Virginia paper warns that this effect may be especially damaging for low-income or low-credit borrowers, who already face tighter budgets.

Sleep problems could feed into a cycle where fatigue drives bad borrowing decisions, leading to debt stress that makes sleep even worse — what researchers describe as a potential “poverty trap.”

Sleep better, borrow smarter

Poor sleep and poor money choices often go hand in hand. The University of Virginia paper demonstrates how fatigue can increase the risk of debt problems, but you can lower these odds with a few practical steps.

• Sleep before you sign. If you have not had a good night’s rest, hold off on loan applications, credit card sign-ups, or large purchases until after you are rested.
• Build in buffers. An emergency fund can give you breathing room so you are not making borrowing decisions under stress. SoFi Checking pays a competitive APY on savings, plus a cash bonus for new members who set up direct deposit.
• Boost your income cushion. Side earnings can make it easier to manage bills without resorting to tired, rushed borrowing choices. Looking for a way to earn income with barely any effort? This company's members take surveys in their free time and collectively earn over $55,000 daily.
• Stick to a clear budget. Having a spending plan reduces the number of on-the-spot financial decisions you need to make, which helps when you are tired or distracted. Build a custom budget, track spending, manage investments, plan for taxes, and organize your estate—all in one platform. Sign-up with Origin today and get a 7 day free trial.

Getting better sleep may not guarantee better finances, but it reduces the risk of impulsive choices that can snowball into serious debt. Rested minds make clearer decisions — and that can keep both your health and your wallet in better shape.