There are two methods of recycling a sweater into re-usable yarn. The first method is done from a work-in-progress (wip), the second method is done from an already finished-object (fo).
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Signing UpStep 1Remove the needles
Then, lay the offending sweater flat sew you can begin frogging. Frogging is the process of ripping the stitches out: As in, "Rip it, rip it, rip it!"
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Watch out for commercially produced sweaters that have cut-and-sewn sleeve seams, shoulder seams, or front plackets, unless you *want* a bunch of short bits of yarn.
You also want to watch out for sweaters made of wool, mohair, or other animal fibers. Once the fibers start felting -- i.e., sticking together Till Death Do Us Part -- your chances of a satisfactory yarn-recycling experience go into a nosedive. Mohair and shetland wool are especially prone to this.
Take heart, though! A seriously felted sweater is by definition not going to unravel on you, so you can cut it up and use it as lightweight, slightly stretchy felt. You can even look up a set of instructions for deliberately felting knitted wool fabric (see also: "boiled wool"), and turn your old sweaters into much denser felt that has all kinds of uses.