Stop Paying Off the Wrong Debt: Adam Carroll’s Shred Method for Creating Cash Flow

Adam Carroll (00:00)
There are, you know, I would say Dave Ramsey kind of made the debt snowball popular, right? He didn’t develop it. He didn’t create it. What we use is a model or a method that’s sometimes referred to as velocity banking. And we have combined velocity banking and a couple of other strategies together within the shred method. I think it is very similar, but I just posted a YouTube video of this. were talking about pre-roll and it’s all about that maybe paying off

the wrong debt first could keep you in debt longer. And the whole idea of the snowball is we’re going after the smallest balance first. And when we go after the smallest balance, we knock that out, we roll that payment up into the next one, the payment itself begins to snowball, hence the name of the debt snowball. But what we suggest in the shred method is we’re looking at the debts that can free up the most amount of discretionary cash flow every single month soonest.

Dylan Silver (02:29)
Hey folks, welcome back to the show. Today we’re joined by Adam Carroll, internationally recognized financial literacy expert, TEDx speaker, bestselling author, and the creator of the Shred Method. For over two decades, he has studied human behavior, leadership, and personal finance, helping families create financial freedom through unconventional financial strategies and behavior-based money management. Thank you for joining us today, Adam.

Adam Carroll (02:55)
Thanks for having me, Dylan. I’m excited about our conversation.

Dylan Silver (02:58)
Now you’ve spent two decades studying human behavior, leadership, personal finance. What originally sparked your drive to understand how people think and behave around money?

Adam Carroll (03:10)
Well, there’s two things that come to mind in answer to that question. Number one was a quote by Zig Ziglar many, many years ago that he stated, which was money is not the most important thing, but it ranks right up there with oxygen on the gotta have it scale. And the second one is that human behavior actually is this very predictable thing. And I wanted to study why did some people make scads of money while some people struggled financially? And

Bottom line, it boiled down to what is their behavior and their decision making habits around money. So I got really intrigued at studying just what is the psychology around money that most people have that either creates massive financial freedom or it creates massive debt and this sense of lack all the time. Yeah.

Dylan Silver (03:59)
Are

there any major psychological…

signs that someone would be adept at being a money manager, even if you’ve never seen them in a asset manager role.

Adam Carroll (04:14)
Yeah. Well, what’s interesting about that is there is a very simple equation about what creates financial freedom. And you know this, I’m sure many of your investors know this, but it’s the idea that when you create a spread between what you make and what you spend for as long as humanly possible, financial freedom is kind of a given. Right. And so what most people do who are, who are really talented money managers, they may make great money.

but they also keep their expenses at a certain level relative to their income so that there is more margin for them to create wealth. And I was listening to an investor fuel podcast actually at one point in time where someone was saying, Hey, it’s, the access to capital that allows people to grow their wealth. You know, it’s the liquidity and the ability to invest, but a lot of times that requires that margin.

So I think some of the best money managers are those who understand that there always has to be a spread between what you make and what you spend. and there’s a, I don’t know if this is a formal law, it’s called sometimes referred to as Parkinson’s law, that your expenses will always rise to meet income unless you’re, you’re intentionally pursuing less. And so, you know, as a general rule, the folks that we work with at the shred method and folks that I coach, one of the things we, talked to them about is.

Yes, you might make this much, you know, if it’s hundred grand for round numbers, the goal is to stay well below a hundred grand on expenses so that there is extra margin to create the financial freedom that you desire.

Dylan Silver (06:36)
One of the or two of the biggest expenses that most people are going to have within their personal budget is going to be their home and then transportation. Do you commonly see that those two budgetary expenses are what people are overspending?

Adam Carroll (06:53)
I think overspending is an interesting way to put it because I think some people will buy based on whatever their buying power is. So like as an example, you go into a car dealership and they’ll say, what would you like your payment to be? And most people think that way. They think, well, I can afford my house payment and I can afford a car payment or two. I can, I can swing my credit card payment and my student loan payment. And in our world, what folks largely do is they payment themselves into a corner.

because they can afford this payment and that payment and the other payment. Once they get to making those payments and paying for food and, you know, eating out every now and again, and a few entertainment expenses, there’s very little margin left at the end of the month. And so the way I would answer that question directly, Dylan, is I think people buy what they can afford, but then they just assume that that payment is locked for the long term. And one of the things that we teach is our goal is to really control cash flow.

and to manage expenses in a way that most people don’t think about, which is exactly how the shred method works. As an example, I talked to someone yesterday who had an 800, I think she had an $875 car payment. And this was a business owner, could easily afford the payment, but she was looking at six years of an $875 payment. In addition, she had $600 in student loans. She had a fairly healthy mortgage on top of that.

And through using some of the strategies we teach had knocked out our car loan in no time, freeing up $875, knocked out the student loan, which freed up another $600. And so right away we created with her participation, $1,500 almost in extra discretionary income a month, which is $18,000 a year, which is the kind of margin that someone could then use to go in and build.

you know, a real estate portfolio or some other investment vehicle.

Dylan Silver (08:53)
Are there any major differences between shred method and debt snowball?

Adam Carroll (08:58)
There are, you know, I would say Dave Ramsey kind of made the debt snowball popular, right? He didn’t develop it. He didn’t create it. What we use is a model or a method that’s sometimes referred to as velocity banking. And we have combined velocity banking and a couple of other strategies together within the shred method. I think it is very similar, but I just posted a YouTube video of this. were talking about pre-roll and it’s all about that maybe paying off

the wrong debt first could keep you in debt longer. And the whole idea of the snowball is we’re going after the smallest balance first. And when we go after the smallest balance, we knock that out, we roll that payment up into the next one, the payment itself begins to snowball, hence the name of the debt snowball. But what we suggest in the shred method is we’re looking at the debts that can free up the most amount of discretionary cash flow every single month soonest.

So in some cases, as an example, if someone has $1,000 or $1,500 left on a credit card, and it’s a minimum $100 a month payment, but they have a $6,000 car loan balance, and the payment is $450 a month, we would say, let’s go after that car first, we’re going to knock it out, we’re going to free up $450 a month, because then in a couple of months, we can knock out the credit card. And now we’re rolling even faster.

⁓ so it is, it is about timing. It’s about priority and we coach to, you know, what is the priority of the payoff that you’re looking at on a, monthly or annual basis. And by reorienting some of that, we can create even more efficiency in the debt payoff process.

Dylan Silver (11:16)
Pivoting here Adam There’s a lot of people right now who are using credit cards to basically float their life And I think everyone’s in the same piece that that’s not a great situation for anybody to be in Is there a time and a place for credit cards or are you of the mindset where you know? If you can purchase it on a credit card, you can purchase it on a debit card

Adam Carroll (11:17)
Yeah.

I candidly, I’m just speaking straight to your audience and being super blunt about this. I love my credit card. I use it like crazy and I use it for the, for the purpose of getting miles and points and cash back and all of that. you know, I think there are times where if, you have the cash, it makes sense to use a debit card. More and more companies today are charging the three or three and a half percent plus a fee to use a credit card in various places.

In some cases that that makes sense. In some cases it doesn’t. But as a general rule, Dylan, I love using my credit card throughout the month for one main reason. And that is it for myself and my wife. It is a great budgeting tool because in a debit card scenario, a lot of people will swipe their debit card and forget how many times they swiped or where they swiped. And then at the end of the week, they look and go, my gosh, I can’t believe how much money we’ve spent this week. You know, this it’s a very abstract way of paying.

Even at the gas pump, you you, you, you tap it and you don’t really pay attention how much your tank of gas costs. just, it debits from your account. Well, with a credit card, what happens for us is we monitor it on a weekly basis and know that on an average monthly basis, we’re going to spend X amount, let’s call it $3,500. So knowing that there is going to be about $875 ish every week that’s going on that card on average.

And we can look at it and say, Hey, we’re, well within line or we’re a little above where we need to be. And we’ll cut back. might do two or three days a week where we just have no spend days. And my wife and I are on the same page about that, where we’ll say, Hey, Thursday, Friday’s no spend days. And that means no gas, no eating out, no shopping online. We’re just maintaining, you know, the kind of average spend that we will see on the credit card, knowing that at the end of the month, we pay it off in full and we go right back to living our life.

So short answer to your question, I love credit cards. And the longer answer is, sure, there are times where a debit might make sense, but I’m a big believer in using the credit card as a tool.

Dylan Silver (13:46)
Now, for folks who are high, let’s say W2 or high income earners in general, compared to folks who may be earning, let’s say less than $50,000 a year, are there different psychological principles that you need to have in order to manage larger cash flow than smaller or will the same mindset apply regardless of income tier?

Adam Carroll (14:12)
I believe that the same mindset applies. However, I’ve met a lot of very app, what I would call affluent or some people might even say, they’re rich. They make a lot of money, but I truly believe rich and wealthy are two very different things. You know, there are folks who are rich, they make a ton of money, but they may not be wealthy because if their income stopped tomorrow, they could be destitute within a few weeks, right? For those that are making under $50,000,

I believe what it does, what it forces is a very high intentionality of where your money is spent and how it’s being leveraged. Whereas when someone has a higher income, it’s easier. We like to refer to it as having flabby finances. Like when you have, when you have flabby finances, things just kind of, they bloat, they get bigger. We don’t really have to pay attention to them. We spend more at Costco. We spend more at Target. You might go on more trips that are a little bit higher cost.

Whereas those who might be at a little bit lower income tier, they just have to be a little bit more intentional about where those those dollars are spent or invested. And I’ll be honest, Dylan, I think that people who start from nothing and grow to create either massive wealth or have massive incomes. Not making a lot at the beginning and get really getting really intentional about how your money is being used is actually a benefit. The folks that are maybe raised in

homes with a silver spoon, or they’ve always been used to high incomes, and they’ve never had to get intentional. That is where it’s really hard to cram that new behavior in, because it’s so contrary to how they were raised. So I look at coming from nothing as a huge privilege, because you’re figuring out here’s how I’m going to wisely and efficiently use the money that I’m making in order to create wealth long term.

Dylan Silver (16:47)
One of the sticking points that I’ve seen for folks who may be trying to cut back is their friends and their family. And it can even get to a point where tempers flare and emotions run high because someone might be thinking, this person is being so dirt cheap right now. Are they doing this just to frustrate me? And I think anyone who’s cut back has experienced

Adam Carroll (17:07)
Yeah

Dylan Silver (17:17)
a lot of this and it can be very contentious. What’s your feedback on that dynamic?

Adam Carroll (17:23)
Well, it’s interesting because I’ve been on both sides of that coin when I was younger. My wife and I, we lived with this mentality that if you do for two years what most people won’t do, you can do for the rest of your life what most people can’t do. And we did cut back, we scrimped and say we would go out to eat with our friends and we would share an entree and share an appetizer and drink water and then we’d go home and drink two buck Chuck from Trader Joe’s, know, cheap wine.

And our friends are like, you guys are so cheap and you’re so miserly and you know, just have fun. Why don’t you enjoy life? But if you contrast their scenario with ours today, it’s a wildly different scenario. So I do think that, that for some people that that cutting back the living frugally for a period of time is if there is an end in mind of where you are going to, by using that philosophy, I think it’s great. I think if someone’s

just being cheap. And that may be part of their personality. We have to accept it. We have to move on. It may cause a rift between folks. But I’m on the other side of the coin now too, where I love lavish vacations. I’m a red wine and steak guy. I’m not a beans and rice guy. And so I do want to go and have those experiences. When we do have them though, I will say this Dylan, they’re very intentional.

And I know when someone is used to having that lifestyle, because they whip through dinner in 30 minutes or less and they’re out the door. And if I’m going to go to a nice restaurant and have steak and red wine, I’m going to take my time. I’m going to enjoy it. We’re going to have great conversation. So I think some of it is appreciating the fact that if you are going to be cheap, be cheap for a reason. And if you’re going to spend the money, do it with intentionality and enjoy it. And don’t just take it for granted because you can’t.

Dylan Silver (19:10)
We are coming up on time here, Adam, any new projects that you’re working on and then also anything you’d like to mention directly to our audience.

Adam Carroll (19:17)
You know, so I’m always working on the shred method, which is our, our cashflow tool. We love helping people free up cashflow, create efficiencies in their, personal economy. And ultimately what we do is we help people create margin, create equity, which we consider liquidity. And that is a fast track to becoming financially free. So we’re always working on that. I’ve got a great YouTube channel that’s getting thousands and thousands of views a month, which is awesome.

So I would encourage folks to go check out the shred method on YouTube. And kind of my parting comment, Dylan would be, for folks that are out there wondering, is there another way? The answer is yes. And there are a variety of ways. I always tell people personal finance is very personal. And it’s why I love shows like yours, because we’re talking about all these different philosophies around money. But, but my, my guidance to folks is often, Hey, when you find someone that’s a living a life that you appreciate,

B, being successful at it and C, you kind of jive with their energy. Follow that. It’s easier to go down one path really cohesively than to try 20 different strategies all at once. And even if that’s 12 months or 18 months, you follow one strategy. If it doesn’t work at that point in time, you pivot. But I’m a big proponent of finding one school of thought or one mentor or one, you know,

course of action following that until you’re successful and And you know letting the proof be in the pudding So I appreciate you. Let me on and have me chat through this with your listeners