I admit, I still have paper towels in my house, but for 2 reasons and the first is so that I can pick up & throw out those disgusting hairballs the cats puke up. It's disgusting enough as it is that I am not going to re-experience it by handing the cloth again when it gets washed. Gross! The second reason is because I know there are moms out there that have a “clean” issue and don't like to use hand towels to wipe their hands or towels. I only have paper towels in the kitchen, but I do want to be considerate of my guests and have them available if they think they need them.
But in our house, we used hand towels & washclothes in the kitchen and bathroom. I use reusable rags and towels to clean the house with as well. I know some may argue it still costs money & energy to wash them, but seriously, how often do you not have room for 1-2 rags in a load of laundry. When you are adding it to an existing load you are not accumulating anything extra. I have a basket by the washer (which is is just outside the kitchen, so it's convenient) that I throw my kitchen towels & cloth napkins in and I can easily grab what is in there every time I bring down a load of laundry from upstairs. And you are saving yourself money and the world natural resources by not continually consuming paper towels.