Here's an option that'll let you keep your photos and not spend money on a new drive. Like you wanted to do, here's how to move to an external drive.
First and foremost, make a backup of you hard drive with time machine. That's just something you should be doing already.
Plug in your external drive, open finder, and drag your iPhoto Library into you external drive. Once that is complete, hold OPTION when starting iPhoto. A new window should pop up and you should select OTHER LIBRARY. Find where you moved the files to on your external drive and click CHOOSE. Now close iPhoto, disconnect your external, delete the files from your main drive.
Easy peasy. Downside is if you try to use iPhoto without the external drive attached you'll get an error that your library can't be found. So you'll kinda be bound using that external drive for iPhoto unless you change the library back to your internal drive.