I would definitely invest in two external hard drives.One for just data storage and for creating another bootable copy of OS X to run off on if something should happen to the internal hard drive.
And use the second drive for Time Machine backups only.
You can use twomof the same capacity storage drives, if you want or your can have the Time Machine backup drive larger if you prefer.
The easiest way to transfer everything from your internal hard drive to the new external drive is to first format the drive, using OS X Disk Utility. Formatting as an Mac OS X extended journaled format, using the GUID partition scheme.
Then use a data cloning app such as CarbonCopyCloner or SuperDuper to completely clone your iMac's internal hard drive to the new external drive. This will make a completely bootable external drive.
Once you are convinced that everything is on the external drive, you can go into iTunes and iPhoto and redirect their libraries via the last part of the instructions I have linked here.
Then, you can start deleting all of the large folders and files off of the internal drive and start cleaning it out.
Here is the link to just properly moving both your iTunes and iPhoto libraries to an external drive.
If you use the data cloning method, I describe earlier, then you only need to concern yourself with redirecting where both iTunes and iPhoto to the libraries on the new external drive.
http://mac.tutsplus.com/tutorials/media/how-to-move-your-itunes-iphoto-or-apertu re-library-to-an-external-drive/
As far as hard drives go, I prefer either FireWire 800 or Thunderbolt ext. hard drives. Especially a fast connect drive for a bootable drive. You do not mention what year, screen size, CPU speed of your iMac. So, it may not have Thunderbolt connections.
My preferences are for ext. hard drives from OWC (macsales.com). Their Mercury Pro line and Mini stack lines of ext. HDs are great! The Mini stack line leaves a smaller footprint on your tabletop.
I, also, use Lacie ext hard drives. These are built like a rock, too, and have real good longevity.
You could use one of these for your second hard drive just for Time Machine.
Good Luck!