Does Apple use your PayPal or gift card first?

Solution 1:

Gift card balance (called ‘store credit’) is used first before other payment methods, except where not possible to be used, such as for gifts.

Which payment method is charged

This is the order in which Apple attempts to charge your payment methods:

1. If you have an Apple ID balance, Apple attempts to use your Apple ID balance to cover the full amount of the bill.

2. If you don't have an Apple ID balance or you don't have enough balance to cover the full amount of the bill, Apple attempts to charge your primary payment method. Your primary payment method is the payment method that's listed at the top of your Manage Payments page.

3. …

https://support.apple.com/kb/HT201359