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This looks more infectious. The amount of itching would be more suspicious for a fungal infection, but for it to have gotten this bad this quickly is more suspicious for a bacterial infection. As a diabetic, you are at higher risk for both types of skin infections, and that also means that we would rather treat infection aggressively, particularly a bacterial infection.
It would be appropriate to try a topical antibiotic, such as Neosporin. Scratching can also exacerbate the problem, so it would be fine to take an antihistamine to control the itching. If this does not get better quickly with these home interventions, it would be appropriate to see your doctor to consider medicines that are stronger than what can be acquired over the counter.
If you have Keflex, that would be great to cover skin bacteria. As for an antifungal, either drug would be good, but I would usually use Lamisil.
Yes, scratching would get whatever germ on your hands, but hand washing with soap and water will control the gems on your hands.