Rust is like cancer.....you gotta get it all out or it will come back and kill you.

Your idea of cutting the rust out is a good idea. For the rust belt I always prefered fiberglass replacement panels over metal...provided nothing structural got removed. If there are any places that even hint of rust, you have bring them back to clean metal too....lots of sander and angle grinder work if it's bad. Even go as far as picking out the seem sealer and checking for rust in the seams.

Once you get all the rust, you HAVE to seal it up Quick. Preferably with a good bare metal primer first, then a base coat primer and then paint. Even on the bottom of the car and the frame....Although I think you can skip the base coat primer. And use good quality paint too....this is your first defence agasint the rust.

The undercoaitings like Rhinoliner and rubberized undercoating work well, but it has to be put on properly. Thinner coats are better!!! You don't want to glop the stuff on there at all. Most rust proofing shops spray the stuff everywhere and lay it on really thick. The problem there is that most of those coating will dry in a rippled, course surface. When you glop the junk on those ripples can become little pockets that hold moisture and create rust. If done right AND maintained those coatings are great.

You want to make sure the surface is clean and dry obviously and spray it on in thin coats. All you need to do is cover the metal good. Check on it every couple of months....if you see it wearing off at all, just touch it up. And, then those wear spots that keep reoccuring you can use a heavier coat on. It's important to get a good coat ont he seams too, don't forget.

Other than that, it's really about just keeping after it.