I found foam alphabet stickers and I put them on paint sample cards. I made four or five of each letter. The letter cards are in baggies. You could also put them in envelopes, but make sure you write the letter on the outside.
Students take out their spelling or vocabulary list. They will work with a partner and each will choose a word from the list. They will use the letter cards to sscramble the words. Then they give the stack of letters to their partner and challenge the partner to unscramble the letters and spell the word correctly. For a challenge, the students can use the words in sentences.