When our bath towels get worn around the edges, usually the center portion is still nice and plush. I cut them in either 4 equal pieces for hand towels, or 6 pieces for wash cloths. I use an old wash cloth as a pattern for the size.
Then I go through my sewing scrap bags and make 2-inch bias strips that match or coordinate with the color of the towels, and sew this around the edges. I've used up a lot of old scrap fabric this way.
I used white towels with mattress-ticking (blue) bias strips to make hand towels for my kitchen, that could be easily kept separate from the regular kitchen towels.
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