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Steps
Go to the Contacts App
Select Open the More Options menu
Select Contact Flags from the dropdown list
You arrive on the Contact Flags page
The Contacts with this flag column shows you the number of contacts that have had this flag added to their profile
Next to each flag is an Actions button
Click it Actions to reveal open the menu of . The options are:
Edit
Delete
Click Edit to edit a flag, i.e. change its Name or Colour
Click Delete to delete a flag (this will remove it from any contacts that it has been applied to; and remove any record that it was applied in the first place)