You can have a lot of fun in Second Life for a long time without spending money. But if you stick around, eventually you are going to want to do something that requires a monetary transaction with Linden Lab. You may want to buy land, or shop for things that cost more $L than you have. Or, you may be wanting a transaction in the other direction...your Second Life business is booming and you want to take out some of the profits.
You need to register Payment Information with Linden Lab. We call that PIOF for short...Payment Information On File. Many people feel that residents who are PIOF are more trustworthy than those who are NPIOF, because they are less likely to be a "throw-away" account. This isn't fair to the vast majority of NPIOF residents, I know...but accounts used by griefers, scammers, and copybotters are almost always NPIOF.
Linden Lab accepts two forms of payment: A major credit or debit card tied to a real life billing address, or a verified PayPal account. LL does not accept most prepaid credit cards or gift cards. If you can't get a credit card that is accepted by LL, you do have an alternative way of buying $L -- you can use one of the reputable third party web sites that offer this service. I've used VirWox a few times and had no problems, but there are others. Here is a somewhat outdated Wiki page listing some of them: http://wiki.secondlife.com/wiki/Archive/Third_Party_Linden_Dollar_Exchanges. NEVER buy $L from someone on eBay! These are very likely to be $L that were purchased with a stolen credit card. If you buy stolen $L, Linden Lab will take them away from you, and assess you a 50% penalty.
Reputable third party exchanges use the Linden Lab Exchange Risk API. Using them is safe, but there is a cost. The best rate for purchasing $L is obtained by using the Lindex...i.e., buying them direct from Linden Lab. Also, if you need to exchange them for $USD to pay tier or Premium membership fees, there is a small transaction cost.
To use PayPal, you must have a "verified" account -- this means that you give PayPal your bank account number. The verification process is easy, but does take about five to seven business days. Once you have set up an account with PayPal, their site explains the verification process.
There are four reasons I prefer PayPal over a credit card:
1. Some credit card companies have been known to refuse payment to LL; their "fraud meter" kicks in and the transaction is blocked. It takes a call to your credit card company to get the issue resolved.
2. Credit cards expire. You may wind up with a failed transaction because you forgot to update your credit card information with a new expiration date.
3. By linking your PayPal account to a bank account that is used solely for this purpose, and contains only a few hundred dollars, you can limit your exposure to things like hackers getting your information.
4. PayPal allows you to make transactions in both directions. You can sell your excess $L, exchange them for $USD, and transfer that money to your PayPal account. You can't do that with a credit card.
To add or update payment information on your account, open your Dashboard page, click Account, then Billing Information. I suggest you do not use the Internet Explorer browser, it can have problems with the Second Life web page. Use Firefox or another browser.