I just explored my account on PayPal.com

Log into your account.

Click on Wallet.

“Balance” should be opened first, if not click on Balance.

Under your current balance is a link for “Preferred”.

Preferred when paying online
Set as preferred
We’ll use your available balance when you shop online or send money for goods and services.
If you don’t have enough money in your balance, we’ll ask you to pick another payment method at checkout.
More about payment preferences.

I believe clicking that should fix your issue.

Yes I remember them saying “if you have a balance, we’ll use that first.” But I guess they did away with that? Because I don’t see that being mentioned any more. But there again, I don’t have a balance currently, so I don’t know.

KOT