You can make a wonderful rag holder out of an old t-shirt. Find a large or x-large t-shirt that you are no longer using. Put the t-shirt on a sturdy hanger, then tie off or sew the bottom of the t-shirt.
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I saw this tip on a gardening magazine somewhere, and it's original form was to store plastic bags. However, I have found it works excellently well when it comes to storing rags as well!
