The difficulty of battles will largely be down to the difference in your gear score. The greater the gap the greater the damage bonus the enemies get. If you can still beat enemies even despite being on a lower gear score I would continue to push on. If you start to lose battles or find them challenging, then investing in gear can help. Since some shards seem harder to come by than others, and because of the 0.35 mindset (evolving to higher rarity all but impossible without relics) I tried to hold off upgrading anything that wasn’t atleast Rare quality. The more battles you can win and chests you can open, the chances of finding better gear, both in terms of rarity and bonuses, increases and you may want to equip those instead of pieces you currently have.
If you have lots of minor shards (lowest quality) then you might as well buff most item pieces to L5. They are pretty easy to find, and for anything higher than common gear, when you eventually go to scrap them they will provide a few more of their higher rarity shards.
Lesser shards, needed to get gear from 5-15 were more of a struggle. One change 0.36 brought in is a more significant increase in power as you level up items. So rather than spreading the shards around getting each item to say L10 then L15, I would now instead focus on getting individual items through a group of shards - so get the helm to L15 and see what shards you have to push it L15-25. Then look at your next rare item and lesser shards to push that.
One slight exception spotting the equipment pic - the amulet - possibly the gifted one from the 0.36 update - with it giving yellow and red mana and you being a Paladin - also worth upgrading because it is also specifically good to your character.
This guide is also handy to refer to to see what bonuses are available from gear and from which dungeons you can find it: