When a material sacramental becomes so worn that it can no longer be used as a sacramental, a Catholic won’t casually toss it into the trash. To prevent desecration, the sacramental should be returned to the earthly elements. Holy water, for example, should be poured into a hole dug in the earth, in a spot no one would walk over. Combustible sacramentals, such as scapulars and holy books, should be burned and then buried. Larger sacramentals that don’t burn should be altered so that their form no longer appears to be a sacramental (ex., a statue should be broken up into small pieces) and then buried. Objects made of metals can be melted down and used for another purpose.
Items lose their blessing or consecration if they are desecrated, are substantially broken such that they can no longer be used for their sacred purpose, or if they are publicly sold (if an item is sold by one individual to another for only the price of the material itself — i.e., if no profit is made, the blessing remains. E.g., if you were to give somone, say, a blessed rosary or sell it to him at cost, he would not have to have it re-blessed; if you sell a blessed rosary to someone for profit, he would need to take it to a priest.)
Note that on 23 June — the Eve of the Feast of St. John the Baptist — it is custom to build large bonfires in which no longer useful material sacramentals are burned. Read more about this tradition in the The Catholic Year IV: Calendar-related Customs area of this site.
The Blessed Sacrament
In the sacristy (also called “vestry”) of a church — the room where vestments, vessels and oils are stored — there is a special sink called a “sacrarium” (also “piscina”) which is used for cleaning sacred vessels. This basin’s drainage pipe doesn’t lead to the sewer as do those of most sinks; instead, it goes directly to the earth so that liquid sacramentals, such as Holy Water and oils, or even the tiniest morsels of the Blessed Sacrament or drops of the Precious Blood which might be found on Patens or in Chalices, will be disposed of correctly and with reverence. If the accidents of a consecrated Host or chalice of the Precious Blood were to become contaminated in some way such that it could not be consumed, they are disposed of in the sacrarium.