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Instead of cluttering your device with screen after screen of dozens of apps, you can group related apps together into folders. To do so, just press and hold down your finger on any app until they start wiggling. In this mode, you can drag apps around to rearrange them on screen. But to create a folder, just drag one app on top of another. That instantly creates a folder, and your iPhone or iPod touch even tries to give the folder a logical name. If that name works for you, just tap anywhere outside the folder to accept it. You can also tap the name and type one of your own.
You can then drag up to 10 more apps into that folder for a total of 12 apps per folder. Click the Home button when you're done adding items to your folder. From this point, you can then access the apps in the folder by tapping the folder, and then tapping the app you want to use. If you want to remove an app from a folder at any time, just touch and hold on the folder, or the apps within the folder, until the icon start wiggling again. This is also the point where you can rename the folder if you like, but if you to remove an app from the folder, just drag it out. But most likely, you'll find the folder feature extremely useful and beneficial especially as you start to add more and more apps to your device.
So, that's how to create and use folders on the iPhone and iPod touch.
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