My Personal Litter Setup
The question of which litter to use is a frequent discussion in the rat owning community. While aspen and pine are definite no-nos, as the strong natural scent can aggravate a rat's sensitive respiratory system, beyond that I've found the choice really is a personal one. So instead of telling you what I think you should use, I'll just share my own litter setup.
To start off, I line the bottom of my cage with cardboard. I've found that the cardboard container of a 24 pack of soda cans, when flattened, fits my cage base perfectly. The cardboard acts as a barrier and keeps me from having to scrub the bottom of the cage. Plus, when I clean I simply roll up the cardboard with all the litter inside and toss it in the trash.
Next, I line the cage with many layers of newspaper. (No matter how many layers I put, the rats always seem to tear it up, which is why I have the cardboard barrier). There are several community newspapers available in my area for free, so I always keep a good stash. Don't worry, the ink can't hurt them, but it might smear on their fur, which is why I always have a few weeks worth, and use the oldest first, so it has time to dry.
I fill their litterbox with Yesterdays News Cat Litter (which is exactly the same as their Small Animal litter only cheaper). I can get a 35 lb bag for around $15, and it'll last me at least six months. Granted, the rats don't actually use the litter box for its intended purpose, but they do seem to enjoy sleeping and eating in it, so who am I to argue?
Finally, I fill the cage with plenty of shredded paper for nesting and burrowing purposes. Every time a new phonebook comes out, I'll go around and collect the old ones from my neighbors. I shred it by hand-- paper tears easily with the grain, and hand shredding ensures that you won't have any sharp edges that might cut the rats.
I've tried a lot of different things in the years I've owned rats, and I've found this routine to be the cheapest and most effective.