Just to clarify; If you are paying yearly the price for the level 1 plan is $9.95 per month, or $119.40 for the full year. The $7.95 per month price is only if you pre-pay for 2 years.
As Nathan said, if you are using a PayPal donation button to make the payment, you will have to factor in the extra PayPal charges.
Have you actually tried to use your own PayPal account (or your friends account) to add the required amount to your DreamHost account using Billing -> Make Payment in the panel? If you can make the payment this way, there should be no extra PayPal fees.
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