To hear the media tell it, Americans are basket cases when it comes to borrowing. The average credit card balance per person is nearly $4,000. College grads who leave school with student loans typically owe more than $19,000. Home foreclosure rates are soaring and threatening the economy as a whole.

The truth is, most Americans manage their credit just fine. And for those who are sinking in red ink, there are plenty of life preservers. Learn how five people we interviewed in late 2007 got on top of their debt—and how they plan to stay there.

PROBLEM: Your credit card balances are out of control

Cindy Campbell got hooked on credit cards in college, and within two years she owed $7,000. By the time she graduated, she was missing payments, paying over-limit charges, and being hit with punitive interest rates.

In 1999, Campbell, who lives in Upper Marlboro, Maryland, signed up for a debt-management program. She paid a lump sum to a credit counseling agency, which distributed the money to six credit card companies. At the same time, she cut her spending drastically. “When I was paying off my debt, I hardly ever went out,” says Campbell, 27. “But it was worth it. I started to realize how good it feels to pay something off.”

Good counseling agencies will review your finances and set up a budget free-of-charge. If appropriate, the agency will enroll you in a debt-management program, like Campbell’s, which can lower your interest rates and wipe out penalties. You shouldn’t pay more than $50 to set up such a program, and then no more than 5 to 7 percent of your monthly payment as an ongoing fee, says Todd Mark of the Consumer Credit Counseling Service of Greater Atlanta, Georgia.

Credit counseling agencies are funded by credit card companies, so they benefit if you enroll. But don’t do it if you can’t afford to keep up the payments. “We won’t accept people for these programs unless they can pay off their bills in 60 months,” says Mark.

Campbell was free of debt, including a car loan, in three years, and she has never looked back. When a promotion doubled her salary, she began saving for a home down payment, and took steps to improve her credit score. She bought a house in 2005 at age 25, and qualified for a 6 percent mortgage.

When she ran up a credit card balance paying for renovations to the house, she called her two credit card issuers to see which had the better balance transfer offer, and found one for 5.99 percent. Recently, she again called her card issuer, told the service representative that she was a long-time customer who pays her bill faithfully, and managed to get a rate of 7.99 percent. “Working to get out of debt takes serious discipline,” says Campbell. “But it gives you more freedom.”

WHAT TO DO: Erasing credit card debt

  • Find extra money to put toward your bills. Cut back on spending, take an extra job, and devote gifts or bonuses to paying off high-interest cards.
  • Call your card issuer and ask for a lower rate, advises Scott Bilker of DebtSmart.com. Transfer your balance to a lower-rate card, but know the rules: Low transfer rates usually don’t apply to new purchases.
  • Seek help from your lenders if you’re struggling to pay your bills. Banks generally waive over-limit fees and late penalties the first time you’re delinquent, says Bilker. Ask to have your payment date moved to a more convenient time of the month.
  • Contact a credit counseling agency before you miss a payment. Find a reputable agency through the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

PROBLEM: You’ve been inundated with medical bills

While visiting her mother in the hospital in 2004, Susan Hollifield complained of a terrible headache,  then collapsed. Diagnosed with a brain aneurysm, Hollifield was flown to Wake Forest University Baptist Medical Center in Winston-Salem, North Carolina for surgery, and remained in the intensive care unit for a month, followed by nearly a year of rehabilitation.

While Susan’s husband, Dwight, spent long hours with his wife, their mailbox filled up with medical bills that eventually totaled about $500,000— including a single hospital bill for $174,000 that the Hollifields thought they were obliged to pay.

Dwight was prepared to withdraw the money from the couple’s retirement accounts, which would have cost him and Susan thousands of dollars extra because they were in their mid-fifties at the time—too young to tap their accounts without paying taxes and penalties.

Then Dwight consulted Pat Pane of Medical Insurance Assistance in Wilmington, North Carolina. Pane is a claims assistance professional who charges $92 an hour to help clients organize their bills, find errors and plead their case with insurers.

Working with her daughter, Kimberly Ayers, Pane discovered mistakes in the Hollifields’ bills. For instance, part of the $174,000 claim had been denied because Susan was admitted to the original hospital under a different version of her name than the one in her insurance records. Ayers got the insurer to reprocess the claim and slash the bill. She and Pane also managed to lower a $35,000 tab for rehabilitation to $81 by filing an appeal, and documenting that the level of care was medically necessary. “It made tens of thousands of dollars’ worth of difference to us,” says Dwight. The Hollifields, who live in Bostic, North Carolina, ended up paying $6,000 out-of-pocket.

The lesson: Don’t write a check until you’re sure the charges are correct. “Once you pay the bill, you lose your negotiating power,” says Pane.

And you often have leverage to ask doctors and hospitals to reduce the bill, especially if you have a lump sum that you can divide among several providers. They may be willing to accept a reduced amount now rather than worry about collecting full payment later.

If they’re not willing to negotiate, set up a payment plan. Hospitals will often let you spread payments over 12 months—a much better option than incurring interest fees by charging medical bills on your credit cards.

WHAT TO DO: Paying off medical bills

  • Make sure the bills are correct before you pay anything.
  • Build your case. If a claim is denied, send a letter from your doctor and copies of other records explaining why the procedure was necessary.
  • Consult a medical billing specialist (find one at www.claims.org). Some charge an hourly fee, while others charge a percentage of the amount they recover.
  • Get help from your state insurance department. Some have ombudsmen to intercede for you or explain how to contest claims or file an appeal.
  • Negotiate with service providers to reduce your bill or set up a payment plan.

PROBLEM: You’re loaded down with student loans

Like many newly-minted professionals, Lisa Virani started her law career in 2004 with a significant amount of debt from both her undergraduate education at the University of Notre Dame in Notre Dame, Indiana, and law school at George Washington University in Washington, D.C.

The average law school grad racks up more than $70,000 in loans; the average medical school graduate owes more than $110,000. Virani diligently made all her payments on time, but at the rate she was going she would still have been in debt at age 50.

After two years at that pace, she met with Dan Joss, a financial planner in Reston, Virginia, who recommended that Virani prioritize her loans based on their interest rates. She’s making extra payments on high-rate loans and will pay off one private loan with a 9 percent rate by the end of this year—eight years early. But she’s making the minimum payments on the government-sponsored Stafford loans she consolidated at a super-low rate of 2.65 percent.

Meanwhile, Virani, 28, isn’t neglecting other financial goals. She has an emergency fund, so she doesn’t need to charge unexpected expenses on her credit cards. Plus, she’s maxing-out contributions to her 401(k) plan and is saving for a down payment on a house. “Having a plan to pay off my student loan debt and save for other big expenses is great,” says Virani, who lives in Arlington, Virginia. “Otherwise, I’d probably still be making minimum payments.”

Recent grads sometimes feel overwhelmed by debt, but they’re actually in a better position than they think. Leisa Aiken, a planner with Timothy Financial Counsel in Chicago, Illinois, usually puts doctors, lawyers and other young professionals on a five-year plan. They pay a big chunk of money toward student loans before adjusting their lifestyle to their higher post-graduate income. “They’ve just come from being students,” says Aiken. “If they can live like students for a few extra years, they can pay off most of their student loans by age 30.”

You don’t necessarily need a high income to achieve that goal. For example, volunteering for AmeriCorps qualifies you for an education award of $4,725 a year for two years to help pay for student loans—and some colleges match the award. Stefan Reinold, 34, a former AmeriCorps volunteer, received $9,450 in education awards that paid off a big chunk of his $12,000 in undergraduate loans, and helped him afford a master’s degree in forestry. He’s now a self- employed forestry consultant in Wheat Ridge, Colorado.

WHAT TO DO: Shrinking student loans

  • Pay off loans with the highest interest rate first.
  • Don’t neglect to save, especially if your employer will match contributions to a retirement account. That’s free money.
  • Get a job that helps pay off your loans. Working for a school in a low-income area, for example, could qualify you to have your loans forgiven (for details about loan forgiveness, go to http://studentaid.ed.gov).
  • Look for discounts. Some lenders cut their interest rates if you make automatic payments from your bank account.
  • Take advantage of tax breaks. In 2008 you can deduct up to $2,500 in student loan interest if you’re single and earn less than $55,000, or married and earn less than $115,000. You can take a partial deduction as your income rises, and you’ll get it even if you claim the standard deduction, rather than itemizing, on your tax return.

PROBLEM: Your adjustable rate mortgage is about to go up

Four years ago, Janet Richard switched from a 7 percent fixed-rate mortgage on her Fort Lauderdale, Florida townhouse which she bought in 1999, to an Adjustable Rate Mortgage (ARM) at 3.25 percent. That low rate lasted for four years, then rose to 5.5 percent. It was about to jump to 7.5 percent.

Richard, 64, would have had a tough time paying an extra $300 per month, and she didn’t want to worry about her rate continuing to rise. “My mother is 93, so I need to prepare to be around for a while,” says Richard.

Despite the turmoil in the mortgage market, Richard had a big advantage: a good credit record. Shopping with a mortgage broker, she qualified for fixed-rate loans at about 6.5 percent. Her current mortgage company offered a competitive rate, which saved her more than $1,000 in closing costs.

If you have an ARM, monitor what may happen to your rate at the next adjustment and compare the new payments with those you can qualify for on a fixed-rate loan. Then calculate how long it would take for your monthly savings to make up for closing costs and any prepayment penalties. “If the break-even point is one year, that’s great,” says Mari Adam, a financial planner in Boca Raton, Florida. “Two years is good, too. And if refinancing gets you out of an insecure loan, it may be worthwhile to switch to a fixed rate even if you won’t break even for three or four years.”

If you have good credit and you’re borrowing $417,000 or less, “it’s really quite easy to get a fixed-rate loan,” says Chris Smith, president of Capstone Mortgage in Lexington, Massachusetts. “You can still lock in a fixed rate of about 6.4 percent.”

But expect to pay rates in the high 7 percent range if you have a jumbo mortgage larger than the $417,000 cutoff at which Fannie Mae and Freddie Mac are willing to purchase loans from lenders. It’s tough for banks to resell jumbo loans to investors at the moment, so Smith recommends either breaking the mortgage into two smaller loans, or taking out a longer-term ARM. You can lock in a rate of 6.75 percent on a seven-year jumbo ARM, says Smith.

And in the current climate, you may not be able to refinance at all if you don’t have good credit. In that case, talk with your lender before missing any payments. The lender may be willing to lower your interest rate or otherwise modify the terms of the loan. Depending on your mortgage balance and the housing market in your area, it might be best to try to sell.

WHAT TO DO: Fixing adjustable rate mortgages

  • Refinance into a fixed-rate loan if you have good credit.
  • Ask your lender for help if you have trouble refinancing. If you’ve already missed payments, see if you can strike a deal with your lender that brings your account up to date. For instance, the lender may be willing to reduce your payments for a few months or to work out an arrangement for making the payments you’ve missed.
  • Seek help from a counseling agency approved by the Department of Housing and Urban Development at www.hud.gov. If you’re worried about foreclosure, contact the Homeownership Preservation Foundation at www.995hope.org or call 888-995-4673.