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!

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.

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

Thanks, but what investments would you recommend if not mutual funds? I have a couple of mutual funds in my 401k that have been consistently performing at 15-20% or more for the past 1, 3 & 5 years and I was thinking of investing my severance pay into those (separate from my 401k of course).

The funds are WWNPX, KSCOX & HIINX. If you have a better recommendation, I am open to suggestions. Thanks!

I think you are doing just fine...

Not knowing what kind of emergency funds you have, you could consider having some cash on hand (in money market funds) available and liquid. You never know when you may go through another job change where a nice severance isn't part of the deal. Most money market funds are paying around 5% which isn't bad at all for babysitting some cash.

If it were me, in your described situation, I'd probably keep $10k or so reserved and invest the other $20k. The funds you mention are not illiquid, but it may take a few days to get an investment sold and a check cut if you need to. The $10k would provide a cushion, assuming you have the discipline to not waste/spend it.

Just an idea.

If you are satisfied with 15%-20% every year and if you can call that a good return by your own definition then you shouldn't make any adjustments.

In the end it comes down to what works for you but personally I think it is very sad that investors would settle for something that low. This is just my personal opinion.

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

If the interest rate on your debt is over 5 or 6% then you should probably pay it off. Modern corporate finance says debt is ok as long as the project you invest in returns at least the interest rate. I assume that the debt you have has been financing an asset anyway so you are already invested.

__________________
www.asiaetrading.com - electronic trading industry in Asia (No stock tips!)

I disagree with wildww, if you use that cash to pay of debt you just 'wasted' your money.

It would be a very poor financial decision. You already pay a very low interest rate and it should be very easy to get any investment that will return more then a lousy 5% a year.

If you used a liability to finance an asset you are already down the wrong path and I would suggest to make adjustments to that approach. Assets financne liabilities and not the other way around.

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

I would probably invest it personally, but only in something that seems stable enough.

Also, I would wait until you actually have that other job before you do anything too drastic.

__________________
FREE Stock Market Simulation game and Financial Community

Normally I would say invest it, but with the economy doing horrible you certainly don't want to be in debt. Pay off the debt and get some stress off your shoulders. Because what if you do invest it then you risk not only losing a portion of your investment but you'll still have the debt and be kicking yourself later. Also you never know when emergencies arise and debt will become hard to pay off if something happens.

The economy doing horrible shouldn't affect how you invest. Stocks go up, stocks go down. You can make 4.9% just leaving the money in the bank. Since you've already used credit heavily, you probably want 6-12 months worth of a cash reserve available just in case. This shelters you from losses on stock investments if you need additional money. I wouldn't even reccommend paying the debt down and keeping a lower cash reserve since you'll probably see interest rates on new debt go much higher.

__________________
FutureWealthPlan.com
LanguageExercise.com