How do you cut letters from a layer in Illustrator CS6 (so it leaves the letter shape but as a hole)

Help!
I tried to search through the questions yes and blah blah, I would rather want the answer so that any dummy would understand.
So once again, how can I erase/cut letters from a transparent image that I have, so the letters would be holes?
I'm just really tired of searching an answer that would actully work for me and I have to get this job done soon, so if you can help, I will come all the way up there and hug all the air out of you. Okay maybe not literally.. But pixelhugs.
I'm desperate, I know. This has been a headache for me for quite some time.
Please help. Thank you.
(I would do this with Photoshop, but the pixels.. Yugh. This work is going to be printed big, so they would be a problem.)

Flora,
If you want the lettershapes to punch holes in the image so you can look through them, a simple way is to place the letters on top of the image, select both and in the Transparency palette flyout tick Make Opacity mask (set the Clip and Invert Mask to the combination that makes it work, both unticked if the Type is black); you may use live Type.

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