Do I need an external hard drive to create a system image

Either way works, it just depends on what you want to do.

I prefer a hybrid approach. Back up your important files to the cloud - Back Blaze, Mozy, Carbonite - and then do an image of the drive.

An image restores all you data and settings - opperating system included. Macrium Reflect or Clonezilla are the more popular free versions. I'm partial to Drive Snapshot.

Create a BartPE CD with the EASEUS ToDo Backup plugin.

Tutorial: Run EASEUS Todo Backup from BartPE based boot CD-ROM

• Connect your external hard drive
• Boot into BartPE and clone your disk to the external drive.
• Replace the old HDD with the new drive.
• Boot into BartPE again and clone your external disk back to the new HDD.

You can also use Clonezilla, but you must clone to image file if the external HDD is larger than 60 GB, as it will not allow you to clone driectly to a target drive smaller than the source.