If you wish to stay at town area, they quite alot of local run guest houses in Love Lane area and Chulia Street. Basically they are clean and if you stay more nights you could bargain for better price. Room options are with fan, air-cond, dorms etc.
Some budget accomodation would be:
1. SD Guest House, No. 15, Love Lane
2. Stardust Guest House (near main road) 370-D, Chulia Street
If you are staying in this area, there are walking distance to town or Komtar area (abt 15 to 20 mins walk) where you could go for shopping. It is about 15 mins walk to Little India area where you could get alot of famous Indian food restaurants. There are morning wet markets nearby the Komtar area too.
Another good option is to stay near the beach area, Batu Ferringhi. Some budget accomodation would be:
1. Ali's Ferringhi Guest House -run by local Malay people, naturally decorated with plants and local feel stay.
2. Sri Sayang Apartment- this apartment situated across the road from the beach. Accomodation start with RM88 for 1 room apartment.
If you staying in this area, there are alot of water activities like the parachutes, jet ski, horse riding, banana boat, foot massage and of course sun bathing. The parachutes activities is around RM45 per trip per person. Horse riding is around RM15-20. You may go for local fresh sea food restaurant at Teluk Bahang, some few kilometres away from Batu Feringghi, you have to travel there by taxi or by bus.