Mexico City discards approximately 66,000 tons of post-consumer textiles annually, producing toxic leachates and greenhouse gases in landfills, which exacerbate climate change and its associated economic and social impacts. The textile waste problem in Mexico City is compounded by the lack of effective waste management systems, insufficient processing capacity, and inadequate regulations. These issues contribute to environmental degradation and pose significant challenges to sustainability efforts. Selective textile collection systems have emerged as a circular solution to address this issue. However, the efficiency and sustainability of these systems are not well understood. To shed light on this, we conducted a comparative Life Cycle Assessment (LCA) to evaluate the environmental impacts of various management alternatives for these wastes, including reuse, recycling, and landfill disposal. The study also explored the main social impacts of these systems using qualitative social interest indicators. Here, we show that textile recycling and reuse can cause a rebound effect, increasing environmental impacts if the use of virgin fiber textiles is not entirely replaced. This increase is due to the higher use of materials, electricity, and fossil fuels, which elevate environmental impact in all categories except climate change. Notably, landfill disposal presents the highest environmental impact when recycled and reused products fail to replace new materials effectively. Our findings highlight several deficiencies within Mexico City’s textile waste management framework. These include limited processing capacity, weak regulatory enforcement, and a lack of incentives to promote optimal waste management practices. Additionally, there is a critical need for increased public awareness about textile consumption and disposal. Socially, raising public awareness is crucial, as recycling and reuse options could paradoxically promote hyperconsumption, challenging sustainability. These results emphasize the need for consolidating existing management systems to mitigate the environmental and social impacts of textile waste effectively. By implementing these policies, Mexico City can significantly reduce the environmental footprint of its textile waste and promote a more sustainable future.