How would you go about fixing this so it doesn't progress any further and rust. I don't have the $$ to have a body shop fix it and I'm looking to fix so it won't rust.

I guess a better question would be how would I fix this with limited funds? Sand and primer? If so how and what type of primer and sand paper? Would primer surfice to keep it from rusting and progressing?

 

Just go to your local paint store and get them to make a spray can of colour coded paint. Prep the area, prime, paint, clear and you are good.
Primer is porous so you cannot stop at the primer stage.

 

Yep, don't just primer as it will absorb water and rust worse.

 

Went to a local auto paint shop today to pickup some self etching primer for some other repair work and they quote me $25 for a pint of paint then $7 or so dollars for the spray cans/bottles.

Does that sound about right for the price?

One pint makes about 3 cans.

 

$7 per can seems a little bit high, but not terribly. From my experience, a can of Duplicolor or Rustoleum runs about $5-6

 

Good price. But you will still need to sand it all out, feather edging the old paint, usually with (in your case) 220, primer the area, lightly wetsand the primer with some 600 to smooth it out, then spray on the base coat, followed by the clear. Done.