Newbie need quick clarification-discarding

[DFJ1023]

We have read the rules and faqs and while I think we have it finally figured out, we need clarification:

You are the lowest level and you have been given everyone's excess. You then lay out all the item cards you can use and sideways for ones you can't. This includes items you can wear, as well as any potions or weapons (i.e, treasure items). If you still have excess cards in your hand, you may discard them until you have 5 (6 for a cleric). This includes monsters, enhancers, curses, races and classes(i.e., door items) But you can not discard willy-nilly an item card.

And then once you get to 1,000 gold coins, you can then discard the items you are carrying for a level.

Is this correct or are we WAY off? lol Thanks in advance!