I've seen this mod before. Easiest would be with TRS plug but i suppose you could use something else. I would recommend it if you ever take your grados out for portable use to prevent the cables above the Y from inevitably getting tangled up.
You can buy new cable for around $0.50/ft ~ $4
new jack for $1
assorted heatshrink ~$3
hot glue ~?
really shouldnt cost you more than $20 assuming you are starting with some basics like a soldering iron and hot glue gun. I would ditch that old stock cable, you wont regret it. I believe this is the trs plug you are looking for. http://www.redco.com/Neutrik-NYS-230.html
you can get parts from markertek.com or redco.com.
Thanks Keopele19 for the tips and the links!
4$ is indeed pretty cheap for few foot of cable but will it improve the sound?