I am making some progress (finally got around to beating the first boss a little while ago), but I'm still grinding rather than progressing much. I average around 1000 gold on a good run right now, but its not uncommon for me to get a small enough amount that I can't buy a single upgrade...
From your experience, was the Blood armor/sword worth the drop in HP and other stats, or should I stick with Knight equips until I can get something stronger?
In my opinion, the first boss was the hardest, I needed a Barbarian King to take the meat of his attacks, and just kept swinging away. On NG+, he was so much easier for some strange reason. Either I got better, or bosses don't level in NG+.
For me, the Blood armor/sword is a play style difference. Do you find yourself killing enemies fairly quickly? If you kill 10 or so enemies in a room for example, how many hits do you take?
I didn't use blood items because of the armor trade off personally. I did the fairy chest rooms and got the Vampirism runes, which give all the benefits of draining health, without the drawbacks of affecting my armor. But for where you are, you may want to consider two blood items, and focusing on trying to level up your armor and health.