By Michael Rupured
University of Georgia

The single most important way to protect your credit rating is to pay your bills on time. If you pay on time, you avoid late fees, service interruptions and finance charges. More important, you can dramatically reduce the cost of future loans.

For some people, the problem isn't that they don't have the money. More often the problem is simple forgetfulness. The solution is to get organized and set up a system.

You've gotta have a system

Your system may simply be a legal pad, a loose-leaf notebook or a large calendar. The type of system isn't as important as whether it works for you. Any system begins with a list of all regular bills, the amount you pay each month and the due date.

When you don't have enough money to pay all your bills on time, it's important to make wise decisions.

First, assess your situation. Figure out how much you can afford to pay and when you'll be able to pay it.

It might help to list your bills in order from the most to the least important. For each of your bills, you need to know what happens when you pay. If you must pay late, pay the accounts with the greatest penalties first.

Set priorities

Make your first priority your secured debts. These are loans where failure to make a payment leads to repossession or foreclosure, such as a home, automobile or furniture loan.

Your second priority should be your "service" credit, such as rent, electric, natural gas, water and telephone bills. Paying these bills late often results in disconnection and hefty reconnect fees, late fees and other costs.

Lower-priority debts are "unsecured" loans, such as credit card debt, medical bills and signature loans. Paying these late may result in late fees and added finance charges. But it won't likely result in disconnection, repossession or termination of services.

Once you decide which bill(s) to let go for now, contact the creditor before the due date. The biggest mistake people make is waiting for creditors to call them. By then, creditors already have concerns about your ability to pay.

When you call them before the due date, though, they're much more likely to see you as someone who's serious about your financial obligations.

Tell them you have a problem and what you're able to do. Let them know how much you can send and when you can send it. Most of the time, they're going to be willing to work with you to help you keep your account current.

Never tell the creditor something just to get them off the phone. The caller makes notes on your account of whatever you promise to do.

Finally, follow through on what you said you were going to do. If circumstances change and you can't fulfill your obligations, notify the creditor right away. Failure to keep your word could hamper your ability to negotiate terms in the future.

Paying bills on time may seem like an ordeal. But a good system for keeping track helps simplify the task. And the payoff is worth any effort you invest.