Would it be smart to refinance my mortgage with balloon payment?

Dear Dave,
I?m going through a divorce, but I get to keep the house. I?m thinking about refinancing, and was wondering if I should take a fixed rate or balloon payment.
? Tom

Dear Tom,
Never do a balloon payment on a house. Anytime you take a balloon payment you?re painting a big, red target on your back asking Murphy to shoot at you over and over. Anything can happen between now and the time that balloon comes due, and if you?re not credit-worthy they can foreclose on you in a second.

People come into our office every week in this exact situation. Take the fixed rate. Then, if you decide to sell the house later it?s your choice and not a situation where you were forced to sell.
– Dave

Dear Dave,
My husband and I have been married for nine years, and we?ve recently started our own graphic design company. We?re beginning to make a little money, but we have two car payments ? a balance of $6,000 on one and $8,000 on the other ? in addition to a mortgage payment. What can we do to make sure we don?t do something stupid and go under?
? Sharon

Dear Sharon,
The two car payments are a little alarming. Now, if you turn around and make $200,000 profit it?s not so bad. But if you only make $20,000, then those are big problems.

The first thing I?d do is sell the car that you owe the most money on, because if you make a bunch of money it?ll be pretty easy to go out and buy a good, used car. Right now I?m trying to keep you from sinking, but you?re trying to swim with ankle weights and no life jacket. You can get away with that for a while, but sooner or later you?re going to get tired. I want to get at least one of those weights off of you so you don?t drown.

Another thing you need to do is really prioritize the money you?re going to make from this company. Don?t spend a bunch of it right off the bat, because you need to bring as much home as possible. Set aside a fourth of what you make for taxes each quarter.

Also, set up a separate checking account for the business, and make sure all of the money from the business goes into that account and all the expenses for the business comes out of that account. What?s left is called profit.

The next step is a fourth-grade civics lesson for the home. Make sure you take care of the necessities like food, shelter, utilities, house payment and that remaining car payment. You may have to put things like cable TV, vacations and eating out on hold for a while. You guys have to hardcore prioritize what it takes to stay alive and keep the dream alive. Good luck!
? Dave

Dear Dave,
I used to work in a steel mill, and a few months ago I had an accident and lost two of my fingers. I was a awarded a one-time settlement of $500,000, and I?ve since moved on and gotten another good job. We?ve got our eye on a house that appraised for $50,000, but the seller is willing to take $38,000. We?ve also got three kids and about $12,000 in credit card debt. What?s the smartest thing to do with the settlement money?
? Kevin

Dear Kevin,
I?m really sorry you had to suffer an injury like that. It sounds like you?ve got a good head on your shoulders, though, so here?s the plan ? ready?

First, cut a check for $12,000 today and pay off those debts. Then, if you guys are sure it?s the house you want, go ahead and buy it with cash. Do you see what just happened here? With $50,000 you became debt-free and you own your own home. How cool is that?

Next, you need to think about retirement. Fully fund a couple of Roth IRAs for you and your wife for the rest of your lives. Also, max out three Educational Savings Accounts (ESA) for each of your kids. This will take about $25,000 over the next two years.

Here?s the fun part, Kevin. You?ve been through a lot, my man, so take $10,000 of the money and just blow it. At this point you?re left with $400,000. Find a good mutual fund broker, one with the heart of a teacher, and invest this money across four types of mutual funds ? growth, growth and income, aggressive growth and international. If you do this, Kevin, you?ll retire a very wealthy man. By the time you?re 65 to 70 you?ll have about $47 million on your hands!

This horrible accident can be turned into a blessing ? one that can make a huge positive impact on your community AND turn you and your wife into Old Man and Old Lady Moneybags!
? Dave