I'm working through making some of my husband's old undershirts into rags and t-shirt yarn. Here is my method:
1. Cut off the main tube of cloth from armpit to armpit. That part can most easily be made into t-shirt yarn. There are ways to use the rest of the t-shirt for yarn, but I'd rather make that part into rags.
2. Cut off the sleeves along the seam. Cut along the seam on the bottom of each sleeve then cut across the top.
3. Cut along the seam at the top of the shirt. Then, cut each of the shirt tops pieces in half.
I cut off the bottom hem and will use it for tying up vines in the garden. You can see in some of the pictures that I accidentally cut all the way through one of the loops, so I'll also use that bit in the garden. To avoid going too off-topic here is a tutorial that roughly matches my method for making the yarn:
https://www.thesprucecrafts.com/how-to-make-t-shirt-yarn-2117355
The final product is 8 cotton rags, some garden ties, and a ball of t-shirt yarn.
“Praise be to you, my Lord, through our Sister, Mother Earth, who sustains and governs us, and who produces various fruit with colored flowers and herbs” St. Francis of Assisi