Hollowtek's advice is at least partially wrong. Your CPU is NOT sufficient to play every game title out there smoothly - just the vast majority of them. There are a number of games (SC2, TERA, Civ V, etc.) where the limited per-core performance of a Phenom II will severely limit performance.
TERA is a notoriously CPU-bound game. Meaning your CPU often has much more to do with your framerate than the GPU. On the other hand, you have a very weak GPU. So it's tough to say which upgrade would bring you more benefit.
More specifically, TERA can only utilize two cores of a CPU, but it needs fast per-core performance from each core. So number of cores doesn't really matter, but per-core performance does. Intel has a large lead over AMD in terms of per-core performance, due to better IPC (instructions per clock, essentially Intel is significantly better than AMD if Ghz are equal).
If you have limited funds, here's what I'd do before deciding on an upgrade. Play TERA a bit more, but note the performance you have with your current graphics settings. Then increase graphics quality, view distance, whatever settings TERA has that will be harder on your video card. Note the performance you're getting. Then decrease graphics quality to as low as it can go. Rock-bottom graphics settings.
If your performance changes dramatically depending on whether you raise or lower graphics settings, your GPU is probably your biggest limiting factor. Upgrade your GPU.
If your performance doesn't change dramatically depending on whether you raise or lower graphics settings, particularly if lowering graphics settings doesn't help, your CPU is you limiting factor. Upgrade your CPU.
Basically, turning down graphics settings should make things easier on your GPU - but changing graphics settings probably won't affect CPU demand. So that little test is a good way to tell what part of your hardware setup is your limiting factor.
P.S. If you do find it necessary to upgrade your CPU, you basically have 3 options depending on your budget & the quality of your motherboard.
1)Get an aftermarket cooler, slap it on your Phenom II, and overclock the hell out of it. Limited upside, but cheap.
2)Get an fx-6350 and an aftermarket cooler, slap them on your current motherboard, and overclock the hell out of the fx-6350. More expensive, slightly more upside, only feasible if you have a good mobo.
3)Get an i5-4670 (or 4430 if you're feeling cheap), a basic no-frills B85 motherboard, and go for the high per-core performance of the recently-released Intel CPU lineup. Cost: ~$270-$300 for CPU+mobo.
4)Get an i5-4670k, a Z87 mobo, an aftermarket cooler, and overclock the i5 for as good as it gets in terms of CPU gaming performance. Cost: 370ish dollars for CPU+mobo+heatsink. You could lower this a little with an i5-3570k+z77 setup, but this option is probably not for you anway.