Highlights from the Dave Ramsey Show

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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QUESTION: Michael in New York currently has a $70,000 mortgage over 5.75% and a home equity line of credit at 2.25% with a variable rate. He wants to know if he should pay off the home with the equity line of credit since it is a lower interest rate. What does Dave think?

ANSWER: You should either renegotiate with your existing bank or get a new bank and get away from the variable rate. I want a fixed rate.

There are a couple of things you want to do because you've got a small mortgage. A home equity loan is a good way to take that mortgage out and get a better rate. You ought to be able to get a rate of about 3% on this on a fixed rate. There is a lot of equity in the house, so it's a no-brainer and a small loan as mortgages go.

On this, you want three things. You want fixed rate, no closing costs and no balloons or calls. Home equity loans often have an annual call or a three-year balloon or something like that. You want a fully amortizing mortgage on a fixed rate that is set up on $70,000. You could put the note on five years and pay it off.

If the bank that you are with right now won't do that, some local bank or credit union will make that loan. That loan is a great one for them to have on the books. No closing costs are needed because this is a home equity loan on a house that is worth a few hundred thousand dollars and you only have a mortgage of $70,000. There is no reason for them to charge you with closing costs.

It shouldn't be over a fixed rate of about 3%, probably a five-year loan.

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