I don't know exatcly exactly how the damage is calculated, but let's imagine the following scenario:
A Paladin lvl 500 with 125 of distance, the time he takes to up +1 of distance he can get 30-40 levels? I'm considering he using training weapons or XP boost. Here in my opinion up lvl is better than up skills, however, I think for a character with lvl 800+ up distance would be better.
This is just a consideraton, consideration, I don't have practical content to prove if I'm right or not.