Tyre popped when going from 26 x 1.95 to 26 x 2.125 My wheel had 26 x 1.95 tyres. I bought 26 x 2.125 thinking it would fit. 

While fitting the new tyre, it bulged outside at one location and the tube also came out for about 7 inches. The tube is the one with slime sealant inside so I am not able to take the air out of tube. I ordered the valve core tool to remove the valve. The tube is also relatively new, I bought it about couple of months back.

My questions are 


can I reuse the tube after the removing the valve and deflate the tube ?
can the tyre be used or it is not fitting, that is why it bulged in one place ?
I would say, you just didn't put the tire on well. When you inflate the tire to half its recommended pressure you should check that the tire seats well for the whole diameter around the rim on both sides. If it came out even a little, push it back in (may require some deflating). Otherwise the pressure may push the tire out like you had, and then the tube can explode.  

For your questions: both the tire and the tube can be used again. But check accurately that the tire's bead is not damaged.