Ahh so you just bought it!
First off, before you get into any upgrades or anything, make sure it fits you! It seems to be an odd size (tall person/shortish reach). Take it out for a longish ride, making fit adjustments as you go-like every few miles.
Once you know it's an excellent perfectly comfy fit, then think about upgrades/modifications/spending money or time or both on it.
-If you do need a new rear deraileur, then it may be a good time to think about a further drive train upgrade to 8/9spd at the same time. -$$$-
-If you determine that the current rear deraileur is useable (or you can get an inexpensive replacement in like new condition), then your expense will be smaller-but likely more time consuming. Spend the time and learn how to do the maintenence on the freewheel/bearings. etc