You can pick this up at Autozone to remove the remaining headless bolt, hopefully the area you are working in will allow a drill, otherwise you may need to find a 90 degree close quarters drill or find another option.
http://www.autozone.com/test-scan-a...tor/great-neck-bolt-extractor-set/231204_0_0/
I have this and it's a good set that I've used twice already, so it has paid for itself when you consider most machine shops charge 30-40 bucks to extract a bolt.
As far as your rusty hole, like AEAPP suggested, get a tap. If you live near a Harbor Freight, they are cheap and I don't mind buying this tool cheap cause you will rarely ever use it (now if you do this for a living, then don't buy this set).
http://www.harborfreight.com/40-piece-metric-carbon-steel-tap-and-die-set-39384.html
Make sure you get the metric set listed, as the SAE will appear the same. Or Spring another 25 bucks and get the Metric/Sae set.
There is not a whole lot of ways to do this on the cheap without possibly running into other issues.
Before you go out and buy these tools, if you are the type that would never again use this stuff, then call a local machine shop and ask them how much they charge to extract a bolt and chase the threads, then decide from there.
Good Luck