I use towels as bedding (Many people also use fabric, like...wow, I've completely forgotten the name of it. The stuff used to make hammocks), and then I use Yesterday's News as a litter. The unscented, cat kind.
A lot of people use fleece, I use felt. Fabric is best used with a litter box though, I tried carefresh in the litter box but they took it out and carried it all over the cage so now I use soft-sorbent, kinda messy b/c its light weight but they leave it where it belongs and poop in their litter box so I think it worth it