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Our goal is to make sure our clients (as well as perpetual information seekers) are well educated. You'll find The Shred Method™ Blog to be a mix of articles about financial literacy, infinite banking, investing, crypto, and a host of other topics related to our way of managing cash flow. If you're curious about thinking differently, you've come to the right place. We're contrarian in all the right ways.

Payoff Debt or Invest? YES!

May 20, 2022

One question you’re likely asking yourself is “shouldn’t I invest instead of payoff debt

The answer is… it depends. 

Personal finance is personal for a reason. There are several things to consider when deciding whether to payoff debt or invest and they are very personal. This is why coaching is offered through The Shred Method™ certified coaches. We have a unique process and perspective about how to accomplish your loftiest financial goals. 

Sometimes that may involve investing and other times we may focus on debt elimination.

It’s a Race To Compound Interest

“Compound interest is the 8th wonder of the world. Those who understand it will earn it and those who don’t will be doomed to pay it.” — Albert Einstein

One of the reasons that financial advisors will tell you that you should start investing early is the power of compound interest. For compound interest to work it requires two things: time and money. By beginning the process of investing early, you take full advantage of time (regardless of how much or how little money you have). In addition, they’ll tell you, it makes sense to dollar cost average — invest a little each month and you work your way into the market. When prices are high, you buy a little, and when prices are low, you buy a lot. Makes sense, right?

The second reason advisors will tell you to invest early is they’re making money when you do. They undoubtedly have your best interest at heart, but there’s a saying that it’s hard to admit you’re wrong when your very job depends on you being right. 

Using The Shred Method™, our users get to compound interest GROWTH far faster. Remember that it requires TIME and MONEY to achieve compound interest. If you have a little money, you need a lot of time. 

But for comparison, here is what has happened with a number of our Shredders —

  • They spend the first 2-4 years knocking out a vast majority of their debts saving hundreds of thousands of dollars of interest in the process, thereby eliminating compound interest working AGAINST THEM.
  • They typically own a greater portion of their income at this point because the debts are all knocked out. (No car payments, no credit card debt, no student loans). This affords them the ability to invest at substantially higher monthly amounts. 
  • By freeing up substantial equity in their property (otherwise known as liquidity), they can invest in deals that make sense that require a higher amount to enter. (These could be $10-250,000, and generate a much higher percentage return than the “borrowed” money costs them.)
  • They achieve compound interest velocity with their money far faster than those who are investing AND still paying down debt over the long haul. 

If You Want Toast From Bread, Use a Blowtorch

We love analogies at The Shred Method™ — if the question is should I invest or payoff debt, imagine you are given two pieces of bread and the goal is to make toast. Doing both simultaneously is like having a flashlight and hoping to have toast from the bread. It’ll get there, but it’s gonna take a looooong time before both pieces are toasted. 

When you use The Shred Method™, you are taking a blowtorch to the bread one at a time. 

Again, the decision to either payoff debt or invest is a very personal one and before you make a major decision, it’s best to consult with professionals you trust. Even when using The Shred Method™ to it’s maximum efficiency, we encourage all of our clients to continue funding 401k plans with a company match.

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