I recently got laid off and will be receiving over $30k in severance money from my employer. I am expecting a job offer this week (making more than with my previous employer), so it looks I won't be needing to live off the severance money.

I have roughly $30k in debt from credit cards, student loans, etc. I've played the balance transfer games long enough to where ALL of my debt is at an interest rate of 4.9% or lower for life.

So, do I pay off my debt with my severance money or invest the money in some good mutual funds and hopefully earn a lot more than the 4.9% interest I'm paying on my credit cards?

Any advice is greatly appreciated.

Thanks!

It's your call.

A lot of the areas of the stock market are in shambles from the housing bust and other economic strains, which means it could be a good time to buy in on some of those areas or it could continue to decline, but either way; ensure that the stocks or industries the mutual fund you will pick out invests in will have the greatest chance of out performing the interest you're being charged (4.9% annually compounded at least monthly in most cases). This is very close to to .41% interest per month so if you wanted to be exact on your total finance charges you'd have to make an ammortization type schedule for the first year of your credit cards and compare it to what type of annual return you will make on your mutual funds.

AKA
Month 1 30,000 dollars + .41% interest = about $123 dollars interest first month

Month 2 30123 minus whatever payment amount you made *.41% interest again

and continue to do that for a year outlook.

You may found out, depending on what payments you're making on the cards that the return you will need on the 30k in a mutual fund may only have to be as little as 2% to cover finance charges or as much as 10% (just guessing on the 2% and 10%, but I am pointing out that the payments your making and how the interest is accrued on credit cards won't necessarily mean a 4.9% annual return on the Mutual Fund 30k will cancel out 30k credit card debt @ 4.9% apr with it being calculated monthly)

If the numbers work in your favor and you feel comfortable with them, then I see no reason why you shouldn't invest the money. Also take into consideration Balance Transfer Fees, I know a lot of banks are removing the $75 dollar cap on fees and just allowing it to be 3% of the total amount transferred so transferring 30k in the future may result in a $900 dollar charge, depends on your cards of course)

Hope this helps.

__________________
Free Financial Advice

How to Make Money on the Internet

Take into consideration that credit cards generally charge interest monthly, (4.9% / 12 = about .41% interest per month), since your cards are that or lower for life then you won't have to take into consideration balance transfer fees.

So make an amortization schedule based off how much you pay on the cards each month (Let's say 2.5% is the minimum payment and you pay that)

First Month 30,000 * 1.0041 (.41% monthly charge) - 750 (2.5% minimum payment) = 30123 - 750 = 29373

Second Month 29373 * 1.0041 - 734.33 =

ETC

Take the total amount of actual interest you will have paid in comparison to the 30k balance to get an accurate return on investment you will need for your mutual fund, unless you plan on making a consistent amount(unlikely) each month on the mutual fund and using that to pay the interest.

You will find out that your mutual fund may need to return less or more than the 4.9% to cancel out the interest.

If the numbers work for you and you feel confident with it, then invest the money. I see no other reason why not, on the plus side you will have that 30,000 there as a cash reserve instead of depleting it on credit card debt.

__________________
Free Financial Advice

How to Make Money on the Internet

I have just noticed that you posted the same question in two different sections so I thought I just copy my reply to this one:

Personally, I would invest it but definately NOT in mutual funds but that is mainly due to my definition of a good return and investment strategy and I just can't qualify 15% or 30% as a good return and anything below 15% is nothing more then a bad joke, in my opinion.

It's all about definition and if you think that a mutual fund which will get you 8% (and therefore more then the 4.9% interest you pay for you CCs) then you may want to look into that.

I would not recommend that you take that money and pay off your debt, it will be a very poor financial move. So, if mutual funds is what you favor and if they will accomplish the goals you want your investment strategy to accomplish then go for that. In the end mutual funds are better then nothing at all.

Vanman made a really good point:

You will have that cash on hand and after you paid off your 30k in CC debt
you will still have the money that you will receive from your employer as severence pay (most likely much more). If you choose to pay off your CC-debt you won#t have that debt put the money will be gone as well and in the worst case you will start to load up on debt once again.

In addition to make sure that you will pay off your CC-debt make sure that you change your spending behaviour so you won't accumulate such debt anymore.

Definately invest it.

__________________
It is not smart to play it safe but it is safe to play it smart.