Image: Worried man © Corbis

Molly Stillman, 27, will never forget how financial panic feels. "Your chest starts to feel hot, your heart's pounding, you get dizzy and nauseous," she says, recalling her realization in 2008 that she owed more than $36,000 on her credit cards. Today, the marketing director from Hillsborough, N.C., is free and clear, and she vows, "I'll never be in debt again."

That's a promise more Americans have been making these days, since the financial crisis and recession shook their sense of well-being. A Federal Reserve Board report issued in June 2012 revealed that only about 39% of cardholders carried a balance in 2010, down from 46% in 2007. Those balances averaged $2,600, compared with $3,100 three years earlier. In part, that's a reflection of banks' stingier credit policies, but it's also the result of a mass awakening among consumers to the fact that paying off debt is one of the only surefire ways to increase disposable income. That's especially true when it comes to credit card debt, often the first recourse for savings-challenged families without much home equity, since it often carries cripplingly high or variable interest rates.

"People forget that when they charge something on a credit card, they're essentially decreasing their future income, because they're committing those earnings in advance," says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, a network of more than 700 nonprofit credit counseling agencies that help consumers manage their debt, often by negotiating lower rates from the lenders. "The recession's silver lining," says Cunningham, is that many people have "changed their ways." Meet four reformed families:

Christina and Jim Harris

  • Anchorage, Alaska
  • Debt: $66,000

For years, Christina and Jim Harris enjoyed a picture-perfect life. Jim's remodeling business brought in about $100,000 a year; Christina, 36, managed the company and raised their three kids, now 8, 12 and 15. Then, the recession began. It was "like falling off a cliff," Christina recalls. "Our income basically dropped by half, but we didn't cut back on expenses." By August 2008, their credit card debt stood at more than $50,000, and they found they could no longer make the minimum payments. Some people recommended bankruptcy, recalls Jim, 38, but "we decided we should pay the money back. We're not deadbeats."

"Nobody forced me to buy that $600 Coach bag," Christina says.

The credit counseling service Christina consulted got the couple's lenders to drop rates from as high as 32% to as low as 7%. The couple agreed to make one consolidated payment of $1,400 a month to the agency for four years, which the agency would then dole out to the banks.

Their spending screeched to a halt. "The year before, my kids were in all name-brand clothes," says Christina. Afterward, they were limited to one pair of designer jeans each, from eBay or a  thrift store. The family did away with cable and Internet. They slashed energy bills by 20% by weatherizing doors and windows and installing programmable thermostats and energy-efficient bulbs. Instead of buying a new clothes dryer for $1,200, they found the same model used for $200. They shaved $500 off their "over-the-top" holiday gift budget. Later, when they felt they could again splurge on a treat, Jim remodeled a friend's kitchen in return for frequent flyer miles to Hawaii.

Meanwhile, Christina upped the family cash flow by heading back into the workforce after six years at home. Lacking a college degree and recent experience, she took the first job she was offered, collecting bills for a doctor's office.

"I hated it," she says. She found the job so stressful that she broke out in hives at weekly staff meetings. The $37,500 salary hardly seemed worth it, given that day care cost $900 a month, and insurance took nearly $400 more. She also felt disconnected from her kids, especially one January night in 2009 when the day care's teachers refused to let her son leave with her. "Jim always picked Cole up, so the staff didn't know me," she says. Soon after, she quit.

A few months later, when Cole started kindergarten, Christina tackled the job market again, this time more strategically. "I spent six hours a day researching employers. I wanted to find a company that treated people well," she says. To test the waters, she took a temp job doing accounts payable with a construction company. It soon turned into a full-time job managing payroll, and before long her pay rose to $45,000. "But there were no women in any power positions," she says. So in late 2011, she took a position as a project administrator overseeing regulatory compliance for another large construction firm. Her current income is "a significant increase."

In September, the Harrises made their final payment, for a grand total of $66,376.07. Along the way, they established a new dynamic. "I've stopped thinking it's Jim's responsibility to support the whole family. It's mine, too, and I relish it," Christina says. By way of celebration, "I bought a Coach bag," she says. "But instead of paying $400, I got it used on eBay for $75."

Tom Sparks

  • Minneapolis
  • Debt: $36,000

When Tom Sparks, 57, ended up with sole custody of his three girls after a divorce in 2002, it quickly became clear that his $30,000 income as a manager of a mattress store wouldn't sustain their lifestyle in Minnetonka, Minn., a suburb of Minneapolis. They left their 2,800-square-foot house for an apartment in the same school district. But his financial struggles worsened when one daughter developed chronic health problems requiring hospitalization that was not entirely covered by his insurance. He realized he would need a second job. "I tried various work-at-home schemes," he says, "but none of them turned out to be legitimate." He considered night jobs at retailers, but the hours wouldn't let him see his daughters.

The solution: a paper route, which added about $400 a month to his income. For five years, Sparks got up most days at 1:45 a.m., delivered papers and went back to bed at 6:00 a.m. "Then, I'd get up at 7 or 7:30 when the girls got up. I'd shower, shave, and have breakfast as if it were all a bad dream," he says.

Still, ends didn't meet. He had to tell one of his daughters that she couldn't try out for the competitive cheer squad, because participation would cost close to $2,000 a year. Instead, she and her sisters took jobs at a local malt shop, for pocket money and to save for their own cars, gas and insurance.

He was managing to pay all his bills on time, but then one card's rate moved from 9.9% to 12.9%. Another card went to a variable rate. "That was the last straw," he says. "That's when I knew I was in trouble." With $36,000 outstanding, he sought help from Lutheran Social Services Financial Counseling, which helped hammer out a five-year plan with monthly payments of $633 and a rate of just 1.75% on some of his debt. He also worked out an arrangement with the hospital where his daughter had been treated. Meanwhile, the girls were getting ready to leave home. Two went to college, funded primarily by scholarships and financial aid, and the third took classes to become a certified nursing assistant. As soon as they left, Sparks canceled his cable and Internet service.

Then he made a move that might seem counterintuitive for someone digging out of debt: He took out a mortgage. "The housing market had plunged in Minneapolis and the economic stimulus package was offering incentives to homebuyers," he says. He left his $1,200-a-month apartment in Minnetonka for a $53,900 two-bedroom townhouse and now pays just $400 a month for his housing. Sparks says he's on track to be free of credit card debt by 2015.

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