First, changing wheel size won't effect fit. Fit is the relationship between saddle, crankset and handlebars. Different wheel size will only change standover height.

How tall are you? 20.5" frame should be good for 5' 10"ish to 6' 3"ish and can be pushed a bit further with the right seat post and stem (and pehaps riser bars). If you can get the bike to fit you comfortably, slap on some 26 x 1.25 slicks and work on building your engine. If it doesn't fit, get a different bike (even if that means used for now).