Highlights from the Dave Ramsey Show

QUESTION: Joy in Chicago and her husband are underwater on their house. They want to refinance but can't. They make $250,000 a year and are working the Baby Steps. They only have $1,000 in their emergency fund. Their mortgage balance is $438,000 and it would take $100,000 to get out from being underwater. Dave has some ideas for Joy.

ANSWER: That means the house is worth about $338,000. You have a tremendous income, so that's a big part of the equation here. You think it will take you a year to put $100,000 down on this. That would be about $8,500 a month that you throw at this deal.

What if you took a year and two months, and put $17,000 aside before you started? At least have something other than $1,000. Maybe $17,000 is not a fully funded emergency fund, but let's put a little money aside and then take off on this plan before you start retirement funding. I'm all right with that.

It just sounds like a long time with your income and a mortgage this big to have an emergency fund that's at $1,000. It's not really a standard Baby Step 2 situation. You'll save $17,000 a year in interest, which is pretty substantial. You've got to get right-side up because this is a portfolio bank loan.

The good news is that you can clear this up and then put the other mortgage on there and clear that up because you've got a fabulous income. Before I embark on that, I'd set $20,000 aside and then get started.

Keep in mind when you do this refinance that you don't want to do a bunch of refinance costs with as fast as you're going to be paying the mortgage off. You've only got about a three-year window where you're going to pay that off. You may slow down a little bit because you're going to kick in Baby Step 4 and Baby Step 5 at that point and then tear into the house. It may be a four-year plan, but you want to be very careful and not take on a bunch of refinance costs.

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QUESTION: Lynn in Lexington says her husband passed away on Valentine's Day. Her income has been cut by 50%, but she has two life insurance policies totaling $105,000. She can pay off her $17,000 in debt or refinance her home and use the money to pay down the mortgage. Dave tells her why she shouldn't make any decisions for a year.

ANSWER: You guys are similar to my wife Sharon and me in terms of age and how long you've been married. What I tell people is that I don't think I could breathe for a while, and I still think you're having trouble breathing. That just makes you normal. This is a blow. You are in the worst possible situation to make decisions.

I always tell people to make as few decisions as we can get away with until you can breathe a little. I would like you to make no major decisions for a year. Spend that year crying and clearing your mind getting the worst of the waves of grief behind you and not do big deals right now.

I'm the financial guy that everyone asks questions, and I wouldn't want to make decisions in the middle of that. If it were me, my brain wouldn't be working.

Let's cut off making biweekly payments on your mortgage and just make them monthly. That will free up some cash. Then just do as little as we can do right now. If you guys were already on this financial peace track and have already cut up the credit cards and know how to make a budget, then I think your budget will be all right if you use just a little bit of this money to pay off the credit cards and student loan.

Park the rest of it in a one-year certificate of deposit and don't do anything with it for the first year. See if you can take your income and his pension and just live on a budget that way without the house being on a biweekly payment.

Having your home paid off is a good plan, but let's wait. That's a big decision, so let's wait a little while and let some of this pass. You are in so much pain right now. Let's make a couple of little decisions and then put the thing in park. Just let it sit a while.

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QUESTION: Scott in Tennessee says his daughter purchased a defective manufactured home. The home is still under warranty, but they aren't willing to fix it. Does Dave think he needs to go to an attorney?

ANSWER: I would take the warranty to an attorney and have them sue the manufacturer. I'm not going to take their word for it because they are just trying to get out from under the warranty work. The way you describe it, it sounds like they closed under one name and reopened under another name just trying to dodge stuff.

The only thing you can do is see if you have legal recourse against the manufacturer or the seller. If your attorney tells you that you don't, then you just bought a bad mobile home. You can buy defective stuff, it's possible. There's no guarantee that people will do what they say they're supposed to do out there.

You've contacted them, and they are not willing to stand behind it. They aren't offering any level of customer service on this, so you are reduced to having to deal with an attorney.

I would take copies of the warranty and sit down with an attorney and have them do a little research as to who you can go after. Then let him give them one more warning, and if they don't do anything, then go after them.

You could also create a PR disaster for them. If it truly is the same bunch of people and they just reopened their company under another name to duck their warranties, then you could let everyone in town know what's going on. That just involves buying newspaper ads. You can put the word out.

But you've got to get in there and figure out if that's what's going on. You certainly don't want to do that and not be sure of what you're talking about. Dig into it and talk to an attorney, and then decide your best course of action, legal or otherwise.

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