For starters, you need to pull all the clothes out of your closet that you know you don't wear. If there is something that needs to go, grab a bag and start stuffing. Most of the time we won't know what we wear or don't wear so this first pass might be not be a very significant one. From that sweep of all the obvious articles that need to go, you need to actually test when you wear your clothes.
From here, you should only have the clothes in your closet that you will be wearing in the near future. I will remove all my seasonal clothes and store them in a safe dry place in a clothing tub. Typically all my coats and sweaters will trade places with my shorts and trunks each fall and spring. Don’t forget shoes, sporting wear, accessories, etc. This will cut down unnecessary clutter and space in the first place, leaving the room for that which is actually important.
Now you will be looking at a set of clothes that you will actually wear in the next few weeks/months (depending on how many outfits you have). Now, set all the hangers so that the open face is toward you. (This is typically the opposite way of hanging up a hanger.) Now set a time frame. I typically use a month, but this can vary. At the end of each day after wearing an article (or wearing, washing, and then hanging up) when you hang the article of clothing back up, put the hanger back using the opposite direction. It's fine to wear something that has been put back the other way. Once the end of your set time period has come, take all the clothes with the original hanger placement and add them to your pile! I do this at least four times a year to make sure I’m never storing something that I don’t actually wear.
After you’ve determined what you really wear, I have developed a system that allows you to always be cycling your outfits and not get stuck in a rut. I always grab from the left and hang back up on the right. It’s pretty simple and really assists in keeping your wardrobe changing.
If you are able to sell old clothes, then you might as well try to get some of your money back from the original purchase. Otherwise, donate your clothes to your favorite charity.