Plug in drives are not the best method of "backup" either. You should ideally have both and replace the drive and cd/dvd media regularly. I buy external drive enclosures rather than a pre-made drive and pop in a new drive every could years (I tend to need the space by then anyway so I need a size upgrade) and once a year copy all the backup dvd's.
I'm also working on data consolidation, I've closed most of our bank accounts such as loans and credit cards and consolidated down to just a couple banks so thats fewer statements to track. I've switched most everything to paperless billing so I can just download the statements rather than scan them. I try to keep scans in tif format rather than pdf since the file sizes are smaller and scan or bulk convert to greyscale. so instead of a bunch of 1-2M pdf's for scanned papers I have a bunch of 100-200k tif's. Now multiply by 1000 and its a bit of space.
I've also gone away from MSOffice so I can combine documents again rather than keep a bunch of smaller seperate ones and the file sizes are much smaller again with OpenOffice plus I can easily fit the portable version on the document backup dvd so I have it handy if I need to restore to someone elses system.