I would get the existing brakes set up nicely before starting to replace parts. You will probably find the braking is fine.

How to do it – the long, detailed version is to get on the Sheldon Brown site and start reading. For example here http://sheldonbrown.com/rim-brakes.html Or, to go to the Park Tools site and read their tutorials. The quick and dirty version is:
- Buy Koolstop salmon (orange) pads that fit your brakes (I guess you’ve already done that for the rear) and a set of stainless steel brake cables and the cable ends.
- Clean rims as mentioned above.
- Replace pads and cable. Adjust pads so that they contact the rim squarely, don’t rub the tire (important!), and are toed-in (when front end of the pad first touches the rim, there is about a quarter coin’s thickness gap between the rear end of the pad and the rim). Adjust cable so that, without applying the brake, there is about a quarter’s thickness of a gap between the pads and the rim. If the rim is wavy enough to rub against the pads as it rotates, you will want to true the rims. Not hard, but leave it for another post.
- Squeeze the brake lever hard, as you might do for a panic stop. This stretches the cable and reveals if you failed to tighten the cable anchor nut enough. You may have to readjust the cable now. Crimp on the cable ends.
- Ride around, applying the brakes, they may squeal at first but should stop after a while, if not then add more toe-in.
- Get the right brake hoods, those aren’t.

You might also rotate the bars down a bit. If the bars are rotated up too much and you are on the hoods, then it is harder to apply force to the brake levers – they are at a bad angle for your fingers, if you see what I mean.