Getting Out of Debt Via the Millionaire Maker

There have been a slew of new personal finance books as of late. It seems that to a percentage of the population, being good with money appears to be the new cool thing to do. People are opening high yield savings accounts, maximizing their retirement investments, writing budgets and working to increase their incomes. One of the latest personal finance books available is written by Loral Langmeier, called the book The Millionaire Maker. In the book, she offers a 5 step strategy for getting out of debt, but is it the best way to go?

Let's take a look at the plan, and then analyze whether or not it should be followed. The first step is to create a list of your debts with the amount of money you owe, the minimum payment, and the interest rate. The second is to create what is called a factoring number. You do this by taking the balance of each debt and divide it by your monthly payment, and this is your factoring number. Step number three is listing your debts from smallest to biggest factoring number, and the one with the biggest factoring number is to be paid off first. Step number four is finding an extra $200 a month in addition to your minimum payments to pay off debt. This is not an easy task for some people, and use that to attack the debt with the biggest factoring ratio. Step number five is debt payments, in which you take out your debts, and use the extra money that you save from the previous minimum payment toward your next debt.

So is this the correct plan to follow? Probably not. There are two major problems with the Millionaire Maker's plan to get out of debt. The first major problem with it is the order that Langmeier suggests you order your debts to pay off. There is no good reason to list your debts by highest balance to minimum payment ratio as she suggests. If you want to do it mathematically proper, you should instead list them from highest interest rate to smallest interest rate. This way you are paying off the highest interest debt first, and are lowering the overall interest rate of your debt as you pay on them.