So me and the wife just went through our closets this holiday weekend to get rid of some clutter. We have a pile of older clothes in decent condition that we no longer want and are going to take drop off at the goodwill. As we filled 2 large trash bags of old towels and wash cloths that have holes, tears, or are so worn that they are practically see through we started wondering what is the best way to dispose of these "old rags" that would even be of no use to the goodwill or salvation army.
If you wife has good condition, usable professional type clothing, there is a charity that provides free clothing to women who are re-entering the workforce. I think it's associated with a battered women's shelter or something. You might consider separating stuff out in the future. There are companies that recycle old towels and rags. They're sorted, cleaned and then sold as rags to custodial services. We get the oddest assortment at school.
Do you have blue bin recycling in your area? I'd just put them in the recycling bin with the glass and aluminum. They'll be sorted out and recycled at the center.
I wouldn't just throw them away... like Godiva said, there are companies that all they do is sell rags. If you donate it to GoodWill and they find it unsellable, I would hope that they pass it onwards to the next link in the reuse/recycle chain. Even unsellable clothing is cut up into rag-sized cloths and used for rags. P.S. We have a system of demoting towels, rags, etc... the lowest demotion is garage towels and after I myself have used them as rags, etc., then I don't feel bad throwing them out.
Do you have a compost? I often toss in relatively clean cotton scraps. The odd bit of nylon thread sometimes appears at the end of the process, but most of it decomposes nicely. I guess worms need towels, too.
i take my old torn up shirts and rags (cotton) and cut 1" squares to use as bore-cleaning patches in my firearms.