With the economy struggling along, more and more people are finding themselves in debt. There was a time, not all that long ago, when most of us would see debt as a temporary bump along the way, and would be able to get out of it fairly quickly, but not anymore. Today's consumer has to often turn to more drastic measures. Of those bankruptcy is the most drastic. But no matter how bad things may seem, you can always try a debt settlement reduction first.

The main idea behind this type of settlement is that you are letting your creditors know that you simply cannot pay them the full amount you owe. And, rather than declaring bankruptcy and giving them nothing, you would like to pay something. This amount can be substantially less, but the catch is that you will have a much shorter time in which to pay it (normally one or two weeks, with 30 days being the typical maximum).

So how does the process work? If you are current on your payments, then you don't need to worry about it as your creditors will see no need to negotiate with you at this time. However, if you owe a lot and have missed several payments (especially recently), then they will be more willing to bargain with you.

Keep in mind that the longer you go without paying, the more you will owe. Not only will your minimum payment continue to get larger, but you will also be adding on more late charges and other fees. That's not to mention that your debt will likely go up to the highest possible interest rate. Believe it or not, that could actually be good news for you.

All of these finance charges and additional fees are the easiest to negotiate. That's because your creditor is going to be the most concerned about getting their principal back. However, this should only be considered a starting point. See, if the company you owe money to is convinced that you won't be able to pay them, then they may be willing to take a small loss as opposed to losing everything due to your claiming bankruptcy.

So how much less will you end up paying when doing debt settlement reduction? There is no set figure, but anywhere from 25% to 50% is fairly common. So, if you owe $5,000 you could end up paying only $2,500 to $3,750. That's a significant savings! In some cases you may even be able to pay less, but such cases are rare (but still worth trying if your situation is desperate).

As mentioned earlier, once you reach a settlement amount, you will only have a short time in which to pay it. There is one other catch: you can normally only do debt settlement reduction with unsecured debt (like credit cards). When it comes to secured debt (home, car, big ticket items), the items themselves may be taken and sold. You will still owe the difference based on how much they get and what you owe, in some cases they may even send you the difference.