In order to get rid of my stash, and to avoid spending too much extra money, I've made a few simple yarn buying rules for myself. I can only buy new yarn under the following circumstances:
1. If it is absolutely needed to finish a project that I plan to sell or give as a gift.
2. It is deeply, deeply discounted, and then only if I have a specific project in mind for it.
3. If it comes in the form of a sweater or other knitted thing at Goodwill that I can unravel.
So a bit more about this last option. I love this last option. For one thing, I'm really into thrift shopping. Seriously, I'm so poor I have to buy a lot of stuff used if I want new-to-me clothes (which of course I always do!) so I have a great deal of experience at thrift shopping, especially Goodwill. For yarn, I look for sweaters that appear handmade, or at least look easy to unravel. The pieces can't be sewn together with thread, but need to be put together with the yarn they are made with. The yarn has to be reasonably thick, because a delicate mohair or cotton thread will not hold up during the unraveling process.
Unraveling takes a long time usually, but if you've gotten a large men's sweater for $2 then you're gonna get so much yarn out of it that it's totally worth it. Plus it's easy to do while watching E!'s True Hollywood Story or Cold Case Files. Or one of those conjoined twins shows on Discovery Health, don't you love those? Um, but I digress.
Wash the item first of course. Then just start up at the neck, get some small sharp scissors or a seam ripper to start snipping stitches at where it looks like the end is, and work at it till you get an end to unravel with. It might take some time to find an end, and then you'll have to do it again with the pieces, but like I said, if you want cheap yarn, it's totally worth it.
I don't have a before and after of a sweater right now, but I do have one of a brightly colored lap-afghan that cost me all of $1.50 at the Goodwill in San Mateo. Above you see the original afghan in all its tacky glory. Below that, the final haul of pretty decent yarn. Afghans are MUCH easier than sweaters to unravel too.