The question is asked in the preterite, so you must reply in the preterite. Normally, for an AR verb like pagar, you would conjugate it as "é" for the verb ending, but since pagar falls under the category of CAR, GAR, ZAR verbs, the verb ending becomes "ué". Now, you would take the stem of pagar (which is pag) and add the ending (ué) to form "pagué", meaning "I paid".
