You do have to level but Materia and Limit Break levels are more important in my opinion. Its actually kinda easy to level in VII. Leveling the materia is when it gets a little tedious but then again you don't need all of them maxed out. Master Materia is more of a hardcore challenge than a practical endeavor.

For me personally, I stop using magic about the time I pass Nibelheim. You should have about two Enemy Skill materia's by then and once you acquire the Tiny Bronco, you can travel and acquire 2/3 of the Blue magic in the game. Trine and Beta are generally stronger and cheaper than Level 3 spells. Once the second disc starts, the game starts handing you powerful materia.

Added Affect + Contain materia in your weapon will eliminate most threats and shorten battles. Always steal from ShinRa troops including SOLDIER. They tend to carry decnt armor and weapon upgrades.