The Personal Finance Podcast - How to ACCELERATE Paying Down Debt (The Shred Method) with Adam Carroll

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Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. On this episode of the personal finance podcast, we're going to talk to Adam Carroll about how to pay down your debt as fast as you possibly can with the shred method. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to be talking to Adam Carroll about the shred method. If you guys have any questions, make sure you hit us up on Instagram or TikTok at Master MoneyCo. and follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast to. And if you want to help out the show, please leave a five-star rating and review on Apple Podcast or Spotify. So today we're going to be talking to Adam Carroll about the shred method.

Starting point is 00:02:02 The shred method is this really cool methodology that we'll get into about how you can really accelerate your paydown on a bunch of different high-interest debts. Anything from your mortgage, for example, is what we primarily talk about this, because if you want to get your mortgage pay down really good. quickly in a way that actually makes sense, then the shred method is a fantastic way and a fantastic process to go through so that you can pay down that mortgage in an accelerated fashion. But it also works for other things. Maybe you have high interest student loans. Maybe you have high interest credit cards. There's a bunch of different ways where you can utilize the shred method so that you can

Starting point is 00:02:35 pay down these debts as fast as possible. In addition, we're going to go into some deep dives on things like helox and how you utilize your helix to be able to pay down some of this debt. We're going to go into how to use your equity in your house so you can pay down debt as fast as you possibly can. We're going to talk about the tax implications of doing this. And we'll even talk about how much equity you need to take advantage of this. And if you own a home with a spouse or a partner, how you get them on board as well. This episode is Action Pack.

Starting point is 00:03:02 I'm really excited about diving into this episode. And if you're not familiar with Adam, Adam is someone who has been in the personal finance space for a very long time. He's also a TED Talk speaker. So he has a TED Talk with millions and millions of views. But he is really passionate about personal finances and specifically the Shred method and how powerful it can actually be. So I'm really incredibly excited to share this interview with you guys. I think you're really going to enjoy it. So without further ado, let's welcome Adam to the personal finance podcast.

Starting point is 00:03:30 So Adam, welcome to the personal finance podcast. Andrew, I'm excited to be here, excited to talk about our topic today. So I'm really excited to talk about this too because you have a very creative way to build wealth. And it's something I really haven't thought about before. I think it's a really cool methodology that you've built out here. So I'm really, really excited to talk about this. But before we jump in, I just want to make sure that everybody is clear on one subject because it is one of the focal points of this system.

Starting point is 00:03:54 And it's utilizing a heloc. So can you give us an explanation of what a heloc is? Yeah, I sure can, Andrew. A helot stands for a home equity line of credit. And when we talk about helocks today, one of the things that may come up as a question for listeners is can you use any line of credit. And the simple answer is yes. So this could be a B-lock, a business line of credit, or a P-lock, a personal line of credit. The key is that the line of credit and how this functions is that it really

Starting point is 00:04:26 is like a two-way street. You can borrow money against a helock, and you can put money in a helock. So it functions like a checking account, but the difference is that we're actually borrowing money from that line of credit. A helock in particular is just tied to your home's equity, right, which is how it gets the name Helock Home Equity Line of Credit. Absolutely. And that is the perfect explanation. I think it's one of those things that a lot of people utilize to do things like buy liabilities. But for a lot of people, you can actually build wealth with a helock, which is why I absolutely

Starting point is 00:04:56 love your system and kind of going through this process. So your system is called the Shred Method. And the Shred Method is something that I think is very unique that nobody really talks about. So you're the first person I've actually heard talk about this system. So can you give us like a bird's eye view of what the Shred Method actually is? Yeah. So the bird's eye view of the shred method is this. We believe that typically people's income is not efficient. It's not being used efficiently. And I like to speak in metaphor. So I'm going to give you a metaphor for what the shred method actually is. Andrew, if you were to leave

Starting point is 00:05:28 your home in the morning at like 8 a.m. and you go to the grocery store and then you come back home, knowing that you're going to go to the post office at 4 p.m. Would you leave your car idling in the driveway all day long? Absolutely. not. Why not? A, I don't want to waste money on gas, B, I don't want it to get stolen. Okay, very good. Yeah. And I hear from other people, it'd be hard on the environment, hard on the car's engine, right? Wasteful, all these things. Well, this fundamentally is what people do with their income. They use it, you know, on the first, maybe on the seventh, maybe on the 12th. But in the meantime, the income just sits there in their checking account or their savings account for days and weeks, in some cases, months or years on end.

Starting point is 00:06:11 all the while they are inefficiently burning interest cost on other high interest expenses. And that could be credit cards, it could be student loans, it would be car loans, or it could be your mortgage, which candidly is the highest interest-bearing debt that most people will have in their lifetime. Absolutely. I think the cool thing about this is you've kind of flipped the script on what a house can be. Because a lot of times people utilize their house, and it actually is a liability if you kind of look at some of the costs and expenses that go through owning a house.

Starting point is 00:06:41 but this kind of turns your house into somewhat of an asset. So how can this actually kind of flip the script and turn your house from a liability into an asset? Well, you know, I read the book, Rich Dad, Poor Dad, and the Cash Flow Quadron, as many of your listeners probably have as well. I'm sure you did, Andrew. Yep. And Robert Kiyosaki always said that an asset puts money in your pocket and a liability takes money out of your pocket.

Starting point is 00:07:03 And using that logic, your home, your primary residence, would be a liability. It takes money out of your pocket. And I started looking at it wondering, how could I use it as an asset? Meaning, if I have equity in my home, what could I be doing with that equity that would actually get me closer to where I want to be? And there's two fundamental things that play here, Andrew. Number one is that if you play by the bankers rules, and I'm not vilifying bankers because they need to make money to, but if you play by the banker's rules, we, the consumer,

Starting point is 00:07:36 are their compound interest vehicle. Does that make sense? It does. So when we borrow money from the bank, we become the vehicle that allows them to make money using compound interest. And I started challenging that notion that if I just dutifully make the payment, just like the banker always tells me to, or the agreement that I've signed up front, they are signing over this amount of money to me at this particular interest rate,

Starting point is 00:08:00 knowing that they're going to make a significant profit on the money that's loaned. So how would I reorient my cash flow to make? make sure that I could blast away debt in record time. And then instead of paying them copious sums of interest, you know, for most people, it's tens, if not hundreds of thousands of dollars over the course of their lifetime. What if those tens or hundreds of thousands of dollars could be deployed into cash flow producing assets, which could be real estate, syndications, could be intellectual property plays. We've got a deal right now going where we're investing in ATM trunches you know, that generate a significant cash flow year over year.

Starting point is 00:08:40 So this is what we started realizing was the equity in our home actually has value, but only if we unlock that value in the form of liquidity or a line of credit to deploy somewhere else where we can get a better than average return on it. And I absolutely love that way of thinking because I think it's one of the most valuable things that you can do with your home equity is be able to utilize it to buy more assets. So that's so cool that you have some of these funds putting together to buy all these different assets to go through that process as well. One big thing for the Shred method is you essentially are using your HELOC as a checking account. This is one thing I really had to,

Starting point is 00:09:12 if you're used to using your traditional checking account to funnel money through, it's one thing that you kind of have to have a mindset shift on. So can you talk about why this is so important to be able to utilize your HELOC as essentially your checking account when you go through this method? Yes. And this is such a profound question, Andrew, because I believe that most people don't have an income problem. They have a liquidity problem. And what I mean by that is the income problem for most people is not there because whatever they've bought, whatever they've acquired the payments that they're making, they can afford the payments, but they don't have the liquidity to blast away the debt or to invest in lump sums.

Starting point is 00:09:51 And so what we're really trying to do is we're trying to get to a point where people have liquidity sufficient that they can do the kind of investments that we're talking about. and by and large, the challenge for most consumers is that they have paymentsed themselves into a corner. So they can afford their payment, but only up to whatever their income is. And then, you know, they got to wait till Friday to get paid again to go do anything with it. When we use the HELOC as a checking account, think about what happens when you free up, you know, call it $500,000, $5,000, $15,000 in liquidity.

Starting point is 00:10:25 And you drop that down on one of your debts. that knocks out the debt right away and frees up that amount of cash flow, or in the case of your mortgage, and this is really fundamental to how the shred method works, if you were to buy a home and you make payment one, you know, as well as I know, and many your listeners probably do as well, that the lion's share of the interest that you're paying on your mortgage is up front. It's the way that the mortgage is built, right? So you're paying whatever the balance of your mortgage is, the interest on that amount interrears 30 days. And as a result, you know, if you had a $1,500 mortgage payment,

Starting point is 00:11:05 $1,300 in change might be going to interest, where only $180 goes to principal, right? But if you dropped $5,000 or $10,000 or $15,000 down on that mortgage right away, you would skip from payment one all the way down to payment, let's say, 47 or 62, thereby passing over five years of mortgage payments just like that, right? And in the passing over of five years of mortgage payments, you skip all of that interest that you would have paid otherwise, which if it's on average,

Starting point is 00:11:38 I mean, let's just say for simplicity's sake, it's $1,000 every payment. You just skip 62 payments in this example, let's say. That's $62,000 in interest you're not going to pay on the mortgage. And so we're showing people how to affect, effectively game the amortization table of your mortgage while creating access to the liquidity that's locked in your home to be able to then go do intelligent things with it. And this is key. It's not about spending, right? You mentioned this before. We're not buying doodads. You're not buying

Starting point is 00:12:10 four wheelers here. We're trying to build wealth using this method. Exactly. And that is one of the cool things. And people who are listening, if they listen to this podcast for a long time, they know we talk about this all the time, how your mortgage is actually front-loaded, just to reiterate what Adam is saying. So this is the most powerful part about this is you're skipping that front loaded interest so that you can kind of move along with your mortgage and you just pay it off that much faster. It compounds that much faster. So it's an amazing way to get it paid down. So that is one of the coolest things with this as well.

Starting point is 00:12:38 So if somebody wants to do this and say they bought a house and maybe they bought it a couple years ago, maybe they bought it in the last year, how much equity do you have to have available to be able to go through this system? I think that's the magic of this, Andrew. you don't need significant, significant equity to make it work. Our system is based on an algorithm. And the algorithm calculates inputs like how much income do you have coming in? One of the inputs that you plug into the system is your expenses, your debts, your mortgage

Starting point is 00:13:07 payment, investments you're making, savings you're putting away, those kinds of things. But what is really at stake here is how much discretionary money do you have at the end of a two-week pay period or at the end of the month that it is, is either sitting there idly in your account, or maybe it's going somewhere into, you know, a lot of people have a sinking fund as an example. And I'll give you a prime case study of someone that was doing this. And then we showed them the shred method created efficiencies and boom, they're out of debt in no time. But back to your original question, how much do you need? For most people to date getting into a home, they're going to have somewhere between five and 20 percent equity already because they're going to put five to 20 percent down, right? You need somewhere

Starting point is 00:13:50 around 5 to 10% equity to really make this work well. Now, when I say that, it's also based a little bit on your income. So if you're making $5,000 a month take home, ideally what you need is somewhere between $3,000 and $7,500 in equity to take advantage of a he lock of that amount so that your income has someplace to go, right? You can't make $5,000 a month and have a $4,000 line of credit, because when you make the deposit, a helot can only ever be zero or negative. It's never going to go positive. Does that make sense? It does. Yeah. So that's perfect. So you don't need a ton of equity there. Even if you bought a house and then, you know, the last couple of years, you'll have some equity most likely, depending on where you live in that house. So you can have that, you can kind of get started

Starting point is 00:14:38 with this depending on how much equity you have pretty much right away from most people. Absolutely. And, you know, furthermore, if someone doesn't have the equity to go and tap right away in a home equity line credit. Obviously, I mentioned you could get a P-Lock, a personal line of credit. You could get a B-Lock business line of credit that'll do the same thing. Or you can use an emergency savings fund or sinking funds or a discretionary fund that you have. Could be called an opportunity fund. And this is the caveat. I'm not proposing that people go sink all their money in, right? There ought to be an amount of money that you have available and accessible to you all the time. But if you've got five grand in addition that you know you won't touch right away,

Starting point is 00:15:20 we could turn that into the shred fund and make it work. And over the course of, call it 60 days, 90 days, 120 days, you'll have more than enough equity that you could then go get a key lock to fully engage the system. I love that. So it's really accessible to most people within that situation. You could probably get some of those loans even without having, you know, mortgage and some equity on that. So along those same lines, can you utilize the shred method on other types of debt, things like student loans, maybe credit card debt, or auto loans? You absolutely can. In fact, we encourage people looking at if you have significantly high student loan debt, if you have a car loan that, I mean, car loans are a little bit different situation, Andrew,

Starting point is 00:16:02 because most of them, right, if you've gotten a car in the last six to 12 months, interest rates were like 1.9%. They've obviously gone up since then and when this recording will come out. But what we attempt to tackle are the higher interest debts first that have some significant payment. So that could be a student loan. It's likely going to be a credit card. But when we go after those, what we're doing is we're shredding the debt and we're freeing up whatever the monthly amount that was being paid on that debt. In effect, what we're doing is we're using a debt snowball.

Starting point is 00:16:34 But we're using a debt snowball. If you were to put the snowball analogy in a gas tank, the shred method is like putting nitrous oxide in that gas tank, right? It just happens that much faster. And so, yes, in answer to your question, you can go after those debts. We encourage you going after those debts. The only difference is that with a mortgage, you are actually building equity in something where when you're shredding your student loans, we're just literally getting rid of a debt that's been hanging over your head. So we may not have that asset necessarily tied to it. And there's a little bit of coaching that goes along with the Shred method and our clients, where we'll walk through your entire scenario and then

Starting point is 00:17:15 plan with you what makes the most sense to tackle first, second, third, and so on, in an effort to create more freedom for our members, because that's why we exist. I love that. So it's one of those things where, especially on high interest rate debt, that's one thing we talk about always that we want to get paid down so that we can kind of accelerate our path to wealth. And this helps us do that in a much faster way, which I absolutely love. So I know. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy. Clothes don't fit anymore and routines are changing.

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Starting point is 00:21:12 excuse me, or $25,000 per couple as a standard deduction. So if you are deep enough into your own taxes that you know you itemize and your itemization goes above $25,000, first of all, kudos to you because you're far deeper in the tax game than I want to be. But secondly, you'd have to have a $5,000, $700,000 mortgage at $5,000, $6,000. percent in order to have enough interest to then itemize. So if you've got a moderate mortgage and you're looking at how much interest you're paying on an annual basis, if it is less than $25,000, there is no tax benefit for you to keep your mortgage for a long time. The government's already given you a gift of a standard deduction of $25,000. So that excuse, that reason for, you know,

Starting point is 00:22:00 why I'm going to keep my mortgage for a good long time, that kind of goes out the window. As for taxes going through a change in taxes running your income through this system, it doesn't really change at all. The one of the major advantages, not the one, but one of the major advantages is we tend to operate with a credit card and we'll tell our members that every charge you make, every ounce of spending that you're going to do throughout the month is going to go on a card, but you're going to pay it off every single month with the HELOC. So we're actually using the card for points and miles and bonuses and all that stuff. So, One of the things that my wife and I have noted, and many of our clients have experienced,

Starting point is 00:22:39 is that Christmas ends up being free or traveling at the end of the year. We want to go somewhere. We just go somewhere for free because we have lots of points, lots of miles, you know, lots of bonuses through Amex or city card or wherever we choose to use it. But from a tax perspective, there really aren't any added liabilities or challenges to using the system. That's awesome. I think that's the perfect explanation. With the credit card side here, we are so pro.

Starting point is 00:23:05 that that's going to be absolutely perfect for some of our listeners as well, because that's one big thing that we love to talk about here as well. So that is perfect. So one big thing is, I know this is for a lot of people and it's going to work for a lot of people. And then one quick question I have is, who is this methodology not for? Are there people out there that just would not work for them? Yes, is a short answer. You know, I often tell people, Andrew, that this is for everyone, but not everyone's going to do it or going to do it effectively. I will say this right off the bat. It is not for someone who does not have discipline with their money,

Starting point is 00:23:39 meaning there is more month at the end of your money, not more money at the end of your month. You know, so if you have more month at the end of your money, this is not for you because the system only works if you have discretionary money. And our goal is to create efficiencies with that discretionary money so that you can pay less and less in interest, less and less in expenses and expand how much discretionary money you have

Starting point is 00:24:02 at the end of every month. It is not for someone. Now, there's a little bit of a qualifier here. It is not for someone who has radically inconsistent paychecks. So it's best if you know consistently what your paychecks are going to be because the system is calculating that using the algorithm and the inputs. And it's looking out over the course of 45 to 60 days saying, based on the income, based on the expenses, here are the lump sums you're going to pay in, right, using the HELOC.

Starting point is 00:24:32 So if you have inconsistent income, maybe you're a business owner as an example, or maybe you're a realtor, one of the things that I recommend people do who are in that state is can you figure out a way to pay yourself evenly every two weeks, right? You may have peaks and valleys in your income, but can you pay yourself evenly so that you can use the shred method. And this is exactly what I did in my business. I made my living as a professional speaker for years. And I would have big months that I would have lean months. And on the really big months or the lean months, I still paid myself the same amount. So it allowed us to use shred as a tool. And it was all very consistent and predictable. We would just do bonuses or settle up every quarter. And that allowed us to make even bigger lump sum

Starting point is 00:25:20 payments to knock out our mortgage and or invest in something else each time that happened. And I could not agree more with folks who are business owners who have inconsistent income as well. It's the best thing to do is make sure that you can pay yourself under kind of what you're making every single month. And at the end of the year, give yourself those lump sums. That's what we do with all of our businesses as well. It's a lot easier to manage cash flow. But in addition, it's going to help you with situations like this, which is perfect. Yeah, sidebar on that, Andrew.

Starting point is 00:25:43 I've seen too many people that, and I use realtors as an example only because I have a number of them and are friends. But they would have a huge month, you know, list and sell two or three homes. And they do, you know, they do 60, 80 grand in commissions. They go out and buy the new Tahoe because they're like, a great month. I'm going to go treat myself. And then they're zeros for the next three months. And they're freaking out about what the money is. And I was like, you know, if you just annualized all of that and said, I'm going to pay myself six grand a month or four grand a month or whatever the number you need to make it work. Because then quarterly or semi-annually, you'd go back in and go,

Starting point is 00:26:21 oh, I've got a big chunk of money in there. I'll just do a dividend or a distribution. That's honestly when this system works like magic. If you're a business, owner and you've got periodic chunks of money throughout the year, this is like a video game you can't lose when you do it well. Exactly. I could not agree more. And even those large chunks, once you get all this debt paid down, even those large chunks, you can invest those dollars to. And we know large lump sums are really going to propel and accelerate your path to wealth when you're investing your money. So I love that. So another big thing here is learning how to do this with a partner. So a lot of people who own homes, maybe they have a partner or a spouse who they own

Starting point is 00:26:57 that home with. So how do you kind of get your partner or spouse on board with something like this red method? Yeah. Man, it's such a good question because I think obviously money, money issues, differences in money mindset is probably one of the greatest reasons that partnerships fail and marriages fail. And I was lucky enough that my wife and I got on the same page financially years and years ago. Candidly, we read a book called Smart Couples Finish Rich by David Bach. And in that book, David Bach talked about women and men have different risk tolerances. And one of the questions that he encouraged couples to ask each other is, how much do you need in savings to feel safe and secure at any given point in time?

Starting point is 00:27:39 And when I asked my wife that, we were a young, young, young couple, maybe a year or two into our marriage. And I asked her, hey, honey, how much do you need it in savings to feel safe and secure? And she said, $20,000. And I thought she'd hit the listerine too hard that morning. you know what I mean? Because I was like, that is an insane amount of money to have in a money market account. She's like, you asked. So in answer to your question, Andrew, I think that the way to get a couple or, you know, a spouse or a partner on board with you on this is, number one, have really honest discussions about what keeps you up at night around money. Because some people is, our bills are really high. And if your bills are really high and you freak out about that, well, the shred method has an answer because your bills are going to go down, down, down, down. over a period of time. If somebody says, I'm just freaked out that if an emergency happens, we're not going to have enough money to cover it, which ultimately is a how much in savings do you

Starting point is 00:28:33 need kind of question. But as you use the shred method and you're creating more and more and more equity in your property, you have more liquidity on that line of credit. So if your house needs a new roof, the water heater goes out, the car breaks down, kids need braces and you're like, well, where's this five grand going to come from? Boom, it comes from the helo. because we've been using it really efficiently and effectively. Remember earlier on I said, if you drop, I think I use 15 grand as the example, you drop 15 grand in and it drops you down to payment 62 from payment one and you just save $60,000. Guess what? That's where the braces come from. So we don't have to sweat the expenses because we're using our income really,

Starting point is 00:29:16 really efficiently, pulling money back from the banker. Like I don't want to make my bankers Lexus payment. I'm going to circumvent how much interest is paid and then leverage what I need on that HELOC because I've created liquidity and equity for myself. I love that. And I think that communication side of it, what keeps you up at night is one of the best questions that you can ask. I actually have that book by David Bach on my shelf and I haven't read it yet. I buy too many books. And so it's sitting on my shelf, but I'm definitely going to read that now because I kind of want to go through that. Highly encourage with a spouse chapter by chapter. You read chapter one, she reads chapter one. they read chapter one. Two, two, go back and forth and then discuss it because one of the things

Starting point is 00:29:52 that came out of it for us was too many people, too many couples have one person that makes all the financial decisions and the other one's completely in the dark. And what happens is either a weird dynamic is created and or something happens to the one spouse that's been making all the decisions. And the other one's like, I have no idea where any of this stuff is located. And so David Bach walks you through. Here's the file folder. structure. Here's where you keep things. Here's how we do passwords. All of that is critical. Young people especially don't really think about it. Like, I'm going to be around forever, but I've heard way too many stories of something happening. And then the surviving spouse is just

Starting point is 00:30:31 like, I'm lost. I have no idea where any of this was. I love that. It gives you actionable advice on that as well. I'm definitely going to go through that. We'll link that book up down below as well. So everybody can check that out if they're interested in it because I think it's one that we'll definitely go through for sure. So one big thing here is that some people may say that when they misconstrue the math on this, they may say, well, it makes more sense to invest my money than to pay off my mortgage and my interest rates somewhere, you know, three, four percent, somewhere in that range. So how does the shred method actually flip this equation because of the accelerated payoff? As I mentioned at the beginning, that this is for everyone, but not everyone will do it. And I've met

Starting point is 00:31:07 a lot of people, Andrew, that will say, I can make more money in the market. And to them, I typically respond. I don't doubt that you can. I really don't. But my question is, have you? Look at the last year. Look at the last two years. Are you up at the kind of level that you could be? Or are you just banking on the fact that over the last 100 years, the S&P 500 has made 8 to 10% on average and blah, blah, and I don't fault anyone who has that logic because I believe in it. But what I will tell you is that my wife and I, and again, another metaphor here, Andrew, for you and your listeners, you know how in a bomb goes off. Yep.

Starting point is 00:31:44 Do you remember this? Like the mushroom cloud. Like collapses in on itself. Yep. And the energy and the collapse, the collapseion, is that a word? The collapsing of the atom on itself or the nucleus on itself just explodes out. I am no physicist, but that's my understanding of it. What I started to think about was if I have really sufficient discretionary income and I

Starting point is 00:32:05 could blast away my mortgage in, let's say, two years or two and a half, three years. and my wife and I have done it twice now in the last seven years. The first time was 3.8 and the second time was 2.7 years. Knocked out completely done. The second mortgage we knocked out in 2.7 years was $200,000. So we would knock our mortgage out. And then when interest rates were where they needed to be, we would cash out refi 200 grand and go drop them in syndications or rental real estate or wherever.

Starting point is 00:32:35 And then we would proceed to shred it again. So in the course of 2.7 years, we shred it. that debt. And what happens when we did that, it was like the nucleus collapsed on itself. And when we exploded our wealth then, when we exploded out, we could go out and drop 100 grand here, 100 grand here, 200 grand here. And the end result of that was way more cash flow, way higher interest rate deals because we're buying wholesale, not retail. And the issue that I have with people who say, I could just dollar cost average invest and I'll make far more money over time, you may. And in the, you know, the law of compound interest says it's the last few doubles

Starting point is 00:33:14 that are going to make you a ton of money. But what if you can get to a compound interest inflection point far faster than you would if you were just dollar cost average investing? And I don't proclaim to be a genius or a guru on this at all because it's only been my experience and the experience of some of our clients. But when we go like this to expenses and collapse them to next to nothing, but our income keeps growing. Our ability to invest bigger and longer and faster is there far more than the people who are just like, oh, yeah, I'm putting my money in month after month after month and

Starting point is 00:33:48 someday it will grow. We're looking at these numbers like, holy cow, we're going to drop X amount in next year. And our clients are doing the same. They're like, I can't believe that I wasn't doing this before when I can put 25 grand in an account just like that, right? Because that's the power. That is the liquidity challenge that people have, not an income problem. It's a liquidity problem. And we're helping to resolve the liquidity problem. So that's my description. That's my explanation of, you know, those that say I could make more money in the market. You may be able to. However, over the next five years, 10 years, whatever it's going to look like, will it go sideways? And can you make money in a sideways market? I mean, if you're selling puts and trading options and

Starting point is 00:34:31 doing futures, more power to you, but it feels kind of risky for some. This can be like a more, from my perspective, a more guaranteed way of building wealth and seeing it grow fast in a short amount of time. And I could think of so many practical applications for that too as well, just thinking through someone maybe who's investing $500 a month, for example, into something like an index fund. And they go through that process. But instead, you could kind of get this mortgage pay down, accelerate that process. And all of a sudden you have all this additional cash flow. And in like three, four, five, six years, whatever that is, then all of a sudden you're investing, say, $2,500 a month instead. So that acceleration is massive. And then,

Starting point is 00:35:06 And over time, it's just going to compound and you're going to have more and more money, especially as your income grows, which is the biggest part of the equation. And what we talk about on this podcast all the time, because I think income just solves so many problems. So as your income rises, if you can keep that income, keep your expenses low, you're really going to see that accelerated side and that accelerated payoff well. And in addition, I can see so many uses for this in real estate investing as well. So we talk about real estate investing all the time on here.

Starting point is 00:35:30 And I can see so many different uses for that as well to accelerate paying down houses. if you have a big group of houses that are paid off that you shredded those mortgages on those, I mean, the amount of wealth that you can build every single month is just an amazing snowball. Oh, man. I mean, whether you're talking about doing a cash out refi when it makes sense to do that again, or you can cross collateralize four or five properties and get a line of credit on those, that could be four or five hundred thousand dollars, a million dollars, imagine what happens when you're, you know, you're at the auction block, which unfortunately may happen here soon, and you're picking up foreclosure deals.

Starting point is 00:36:04 And it's just like, I'm making cash offers because I can write a check out of my heloc and pick up whatever I want. You know, that's the power of this, really. And it takes a little bit of time, Andrew. It's not, this isn't an overnight thing. But, you know, I've been on a couple of podcasts. They talk about crockpot wealth. You know, we're talking about crock pot wealth with a little bit of a microwave feature

Starting point is 00:36:25 to it because we're going to microwave it quick and then go crock pot this thing to massive, you know, massive abundance over time. Absolutely. I love that. I love that analogy to Crockpock wealth, slow and steady all the way across as we start to build wealth. So here's another big one, because I think this is one where we get a lot of questions sent into us about helix. And when people talk about helox, maybe they do like a home improvement project. So say, for example, maybe they put in a pool for 100 grand. They pulled a helic out to go ahead and do that. So say somebody did that and maybe they have some equity that they've built out of that helix. So maybe they have like 80,000 on their helot, but they can, you know, pull 100 grand.

Starting point is 00:37:00 Does that work for someone in that situation if they already have that existing helok or would it not work for someone in that situation? It does work for someone in that situation. And actually, we have a piece of software that powers the shred method. So when I talk about the algorithm, it literally is an algorithm that's calculating how much is available, how much is coming in, how much is going out. And what would you then need to leverage at any point in time in order to get yourself out of debt to create more efficiency with your income? So in a case that you just described, 100 grand HELOC, 80 grand on it, you would have ostensibly $20,000 sitting there. And what we often consult with our clients about is, hey, let's not deploy the whole thing.

Starting point is 00:37:41 Let's put 12 or 13 grand, 15 grand max in the system that you can use to shred with so that you always have $5,000 in liquidity in case you need it in case of an emergency. But that 10, 12, 15 grand that's there available to you, you're going to be able to use that to shred some of the debt, whether it's your mortgage car, credit card, student loans, what have you. The one difference that I would add to this, Andrew, is that I would educate those people on their income actually needs to be cycling through the helock. So the challenge for most folks is they go get a helock to build a pool in this case, but they treat that helic as a home equity loan because that helic or loan is going to have a payment attached to it. Generally,

Starting point is 00:38:27 it's going to be either interest only or it will be a 1% of whatever the balance is. right? And so on a monthly basis, they're going to make that minimum payment or maybe a little bit more. But now the Heelock just feels like this oppressive thing that I got to pay off because I get 80 grand sitting out there. When your income is cycling through it, it's going to go up and it's going to go down because you're paying bills out of it. But by and large, it's trending down if you have discretionary income. And furthermore, we're paying less and less in interest as it trends down every single month, which is our ultimate goal. So again, this is like showing the caveman fire for some people when we show them how it works. But when your income is cycling in, the interest that is charged against the HELOC is charged on the average daily balance. It's not like a mortgage, which is charged on the balance at the end of the previous month. So they're looking at over 30 days time, what was the average amount you had on that HELOC? Remember, it was going up and down because of your income.

Starting point is 00:39:28 But the average was this. So it's going to be less than you might imagine. You know, it's not magic, it's math. When we start to show people the math of it, they go, oh, I didn't realize how little interest I was actually being charged on my HELOC because I borrowed 10 grand against it, but I dumped seven grand in over two payments. So it was up and then it was down. It was up and then it was down.

Starting point is 00:39:51 But over the month, it was here. So I was only charged like tens of dollars in interest for the month. But I saved hundreds or thousands of dollars in interest on my mortgage by applying it correctly. That's perfect. I think that's the absolute perfect explanation for that because I think that's one thing I know people would be wrestling with because there are people that have asked a number of questions on that. And I think that would be kind of stressful to see it kind of go up and then down. But over time, if you're doing this the right way, it's obviously going to go down over time and that interest on that will be reduced over time as well. So that is a perfect explanation on that. So I want to shift gears here because we have a couple of questions that we ask a lot of our guests. And so I would love to ask you a couple of these as well. So the first one is what part of your work, or life makes you come alive? Well, I mentioned before that I've been a public speaker, built my career on presenting and being in front of groups.

Starting point is 00:40:42 And nothing makes me come alive more than seeing people's eyes light up when they get a concept, when they get an idea, when they get that one thing that's like, oh my gosh, if I do this, my life will turn around or I'm going to do this one thing differently for the rest of my life.

Starting point is 00:40:59 And I've told people that my hope on my, my deathbed and or at my funeral is that there is a parade of people walking by my family saying, I learned this one thing from Adam and it changed my life. And a buddy of mine calls them life gate moments that when you go through the life gate, your life has never been the same. I want to show people life gate moments. That's what makes me come alive. And for me, candidly, Andrew, shred is it. When I learned this, I was like, how can I not teach this to people? It's such a profoundly simple concept. Folks are using it in various parts of the country or in the world, but we're not.

Starting point is 00:41:37 And we're not because we've just been ingrained by the banking system. So what makes me come alive is aha moments and lifegate moments for people. I love that term lifegate moments. I'm going to use that in the future, I think, is that's a really cool way to think through it as well. So the second one is what is the best advice about money that you've ever received? One of the best piece of advice I ever received was there is a difference between, taking a calculated risk and being risky. And I've taken that to heart in virtually everything that

Starting point is 00:42:06 I've done because it would be risky to go into something that I know nothing about and dump a ton of money in. Or I could take a very calculated risk by listening to shows like yours and doing my due diligence before I get into an investment by listening to every single thing that person has put out or reading every book I could find about it before I go do it. I have found that when I take a calculated risk, they generally pay off. When I am risky, they generally don't. And it's something that I've taught my kids. I've tried to teach college students and young professionals everywhere, that there is a big difference between being risky and taking a calculated risk. And if you can weather the calculated risk, go do it. But if it's risky and you're risking losing the money,

Starting point is 00:42:52 you'll likely lose it. I love that. It's kind of like the old Warren Buffett adage where he just doesn't invest in anything he doesn't understand. And that's kind of one of the principles. as well is you've got to understand what you're doing, understand the risk, what your risk tolerance is, all those other things. So I love that. The third one is my favorite for Warren, you know? Exactly. I think it worked out pretty well for him. Just exactly. So the next one is my favorite one of all. So it is one that we get a different answer pretty much every time. And it's one that we've gotten some pretty cool answers. So what does wealth mean to you? Well, I'm a big proponent of the wealth score. And wealth score in my perspective and in my community is,

Starting point is 00:43:29 if your current income stopped tomorrow, how long could you live your current lifestyle? So if you're earned, and I say earned income, really, if you're earned income stopped tomorrow, how long could you live your current lifestyle? Passive income is going to keep coming and that's all gravy, right? But if you're earned income stopped tomorrow, how long could you live your current lifestyle? Meaning you're going to deplete all of the reserves and assets you have. How long could you live? This to me, Andrew, is the measure that most people are trying to get to with quote unquote

Starting point is 00:43:58 retirement. And, you know, the financially independent retire early community would say, okay, I just need to get to this number and then a 4% burn rate gets me wherever, right? But I'm saying if that income stopped, because what if you can't draw 4%? Maybe your growth isn't sufficient. How long could you last with the amount of money you have or the passive income you have if current income stopped tomorrow? And unfortunately, for most people, they'd be like Sunday at 3 p.m. That's how long they could last. And my wife and I have really, we have played this game well where we're looking out going, hey, at this point, we could last well into our 70s. We could last, you know, and every single year or month,

Starting point is 00:44:39 we'll look at it, go, hey, we added three months or we added a year to our number. We added five years to our number. Our goal is to get to a point where we're going to supersede our lifespan by 10 or 15 or 20 years. And at that point, now we're just empire building. Let's get to a point where we're creating, you know, A, massive passive permanent streams of income. And B, let's create a Rockefeller-type fortune for the next generations, not just our kids, but our grandkids and great-grandkids, because I think we can using the logic that we're using. I absolutely love that. And it's like the ultimate safety net is what you're kind of creating here, which is one of those things that then you can utilize that to be able to take more aggressive moves and be able to build wealth that much faster.

Starting point is 00:45:20 So I absolutely love that. So Adam, thank you. this was an amazing conversation. I'm so excited for people to hear about this. We're going to link up the shred method down below so you guys can check that out. But Adam, where else can people find you and everything you have going on with the shred method and everything else that you're doing? Yeah. Well, the best place to go, Andrew, is the shred method.com. That would be a great place to go check out. We have a savings calculator. There's a helot guide that you can download, as well as an evergreen webinar you can watch that talks about the shred method, goes through the detail and the

Starting point is 00:45:49 numbers. If you want to find out more about me, you can go to Adam. Carol, C-A-R-R-O-L-N-F-N-Fo. And on my site, there is information about me from a speaking perspective. I have a TED Talk with about 6 million views. I did a documentary on student loan debt some years ago that's available out there. So there's a lot of great content there, but Adam-Carroll.info or the shred method.com or the two sites. Well, fantastic. We'll link all those up down below in the show notes as well.

Starting point is 00:46:17 Adam, thank you so much for coming on. This was so fun. Andrew, my pleasure. Thanks for having me. Rose and lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Play Ojo.

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The Personal Finance Podcast - How to ACCELERATE Paying Down Debt (The Shred Method) with Adam Carroll

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