Isn't XCode meant to be free?
The actual problem is that side loading of apps without needing an Apple signed certificate was added to iOS 8. You'll want to upgrade your iOS and Mac OS to get to the level where Xcode can self-sign and self run based on your free AppleID instead of a paid and signed developer certificate.

It that fails, you would have to get a newer device to use the free entitlement of running code you self-sign and side load from Xcode.