A guide to Iceland on a budget

Have you thought that a trip to Iceland on a budget is near impossible? Think again! Iceland was one of my favourite places to visit, not just in Europe, but EVER! It’s known for its dramatic landscape and beauty but it’s notoriously expensive. Here’s a guide to get the most out of your trip to Iceland on a budget.


January is a fantastic time to visit Iceland to get the most out of your money. It is one of Iceland’s coldest months and usually the time of year that experiences the most amount of snow so January tends to be slightly less expensive then the summer high-season for accommodation, flights and sometimes even tours and activities.

Average temperature in Reykjavik in January is -1°C – +1°C (30-33 Fahrenheit). There are also very short days in December and January, where the sun rises at 11am and sets at 4pm. This sounds a little terrifying but the early sunsets increase your chance to see the Northern Lights.


Renting a car in Iceland is a must, especially if you want to save money on expensive tours. We rented our car with Sad Cars, (I know, I know, the name can be a turn off) and it was by far the most affordable option as it cost 9700 ISK ($72, €60, £54) a day. Beware the cars are not new, our car was pretty rusty but it got us from A to B so that’s all that matters. You can pick up your car from the airport and drive straight to the Blue Lagoon.

They do tell you that you need to rent a 4×4 to drive in the snow in Iceland, but if you’re only driving the Golden Circle route you should be fine. This Toyota Yaris had no issues getting around. All the cars also have special snow tires so that they can drive in the snow.

I suggest that if you’re quite picky about the cars you drive, do some extra research on the different car rental brands that offer rentals in Iceland. You don’t always have to choose Hertz or Enterprise just because they’re the most popular, other brands can offer the same thing at a lower price so you can really enjoy Iceland on a budget.

Book a car here:


Staying in a private room in a hostel is by far the best way to save money on accommodation when in Iceland on a budget. We loved staying in Bus Hostel, it was conveniently located in Reykjavik and had free parking. You can choose from private rooms, as well as dorm rooms here, but you share a bathroom in whichever room you stay in. This hostel also stores the last McDonald’s burger and fries sold in Iceland. McDonald’s left Iceland back in 2009, someone bought a burger a day prior to its closing and decided to keep it. Now they display this McDonald’s meal in the hostel lobby under a glass lid.  

Book Bus Hostel on here

Another great option for budget accommodation in Iceland is Airbnb. We stayed in a lovely guesthouse near the airport which we used as a base to drive around to go Northern Lights Hunting.

To save up to €40 on your first Airbnb stay you can use this link here.

The guesthouse has a hot tub and if you’re lucky you can chill out in the hot tub while watching the Northern Lights dance in the sky. The guesthouse owners also provided a little gift basket which had a bathrobe and slippers to use and some delicious chocolate bars.

Food and Drink

Food is definitely the part where you can struggle the most to save money. For breakfast, I found it helpful to go to the supermarket for food. The supermarkets that were the best value were Netto and Bonus. Buy yourself some Skyr and some pastries and you can have a cheap delicious breakfast. For eating out in Iceland on a budget, here were the best places I found for cheap eats.

Bæjarins beztu pylsur

Bæjarins beztu pylsur which in English translates to “the best hot dog in town” is a hot dog stand in Reykjavik. These hot dogs are amazing and I still think about the crispy onions. The toppings available are raw onions, crispy onions, ketchup, mustard and remoulade. Order all of the toppings and you won’t regret it. A hot dog costs 380 ISK ($2.80, $2.30, £2.10). Eat two and you can call it lunch (or dinner).

Address: Tryggvagata 1, 101 Reykjavík, Iceland

Reykjavik Chips

If you’ve decided that a hot dog is not a substantial meal, you can head to Reykjavik Chips during Happy Hour. Where you can get a portion of chips and a beer for just 800 ISK ($5.90, $5, £4.50). The chips are super crispy and they have such a great selection of dipping sauces to choose from.

Address: Vitastígur, 101 Reykjavík, Iceland

Svarta Kaffid

This is a lovely place in Reykjavik serving soup in bread bowls. It’s a perfect winter warmer for those cold January days. You can also get refills of the soup into the bread too and then after you’ve finished the soup you can eat the bread! The menu consists of two daily soups- One is meat based and one is vegetarian. When I visited I tried reindeer soup and it was delicious! They have a special offer called the Golden Combo that offers soup with a Gull beer for 2500 ISK ($18.40, €15.60, £14). This is great value as a pint of Gull on its own in any other place would go for around 1200 ISK.

Address: Laugavegur 54, 101 Reykjavík, Iceland

Cafe Loki

This is the place to go to try the famous fermented shark. I suggest you try it but I don’t expect you to finish it. The texture was like chewing on an eraser, and the flavour…. hmmm let’s just say it’s pungent. For 1600 IKR ($11.80, €9.95, £8.95) you can try fermented shark and a Brennivín shot. The cafe has lots of other options on the menu, come for the fermented shark but stay for the sweet treats such as Rye Bread ice cream. The cafe is also conveniently located right beside the Hallgrimskirkja.

Address: Lokastígur 28, 101 Reykjavik, Iceland 

Micro Bar

This place was the first craft beer bar in Iceland and they have such a great selections of local brews. They do Happy Hour from 5pm-7pm and have special deals on select beers where you can get a beer for as low as 700 IKR ($5.15, €4.30, £3.90). This is seriously good value so if you want to drink cheaply, get to Micro Bar for 5pm on the dot.

Address: Vesturgata 2, Reykjavík, Iceland


If you’re planning to drive the Golden Circle this is a perfect stop for a filling and special lunch. The restaurant is set in a greenhouse, which is powered by a geothermal hot spring. They grow the most delicious tomatoes here and you can get all you can eat tomato soup, and bread for 2000IKR ($14.75,€12.50, £11.20). They leave a basil plant on the table so you can pick off as much as you need. On a cold January day driving in a snowstorm, there is nothing more comforting than unlimited tomato soup. They are open everyday from 12pm-6pm, to eat here you must book in advance, you can do so by calling (+354) 486 8894 or email:

Address: Reykholti, Bláskógabyggð, IS-806 Selfoss


The Golden Circle

The Golden Circle consists of

  • Þingvellir (Thingvellir) National Park
  • Geysir Geothermal Area
  • Gullfoss Waterfall.

The cheapest way to see the sights on the Golden Circle is to drive it yourself. It is possible to do it in one-day and you can also see everything within the short daylight hours. Start driving from Reykjavik before sunrise at approximately 9.30am so that you are already on the road, once the sun rises you should have arrived at Thingvellir National Park, which is the meeting point of the North American and Eurasian tectonic plates, which creates some stunning geological sights. You can admire its deep valley, the only place in the world where the Mid-Atlantic Ridge is visible on land.

After your finished, you should head onto Geysir Geothermal area, where you will find two Geysirs. After you’ve watched the Geysir spurt up into the air as many times as you can. It’s time to head to Gulfoss Waterfall, one of Iceland’s most famous waterfalls. After this it’s time to head to Fridheimer for a late lunch. Once your belly is full, you can make your way back to Reykjavik.

The Blue Lagoon

The Blue Lagoon is probably Iceland’s most popular attraction. I understand the hype, it’s a pretty amazing place. I suggest going here at sunset for the best experience. The cost of the standard Comfort Package is 6990 IKR ($51, €43, £39) which includes

  • Entrance to the Blue Lagoon
  • Silica mud mask
  • Use of towel
  • 1st drink of your choice

It’s pretty amazing to enter 40 degree water when it’s -1 degrees outside. The only option for saving money here is by driving here yourself rather than taking a tour bus. It’s a short 20 minute drive from the airport and you can go to the Blue Lagoon on the way to Reykjavik.

Address: Blue Lagoon Norðurljósavegur 9, 240 Grindavík


This modern cathedral is an iconic symbol of Reykjavik. The architect who designed this church based his design on elements found in Icelandic nature, like basalt columns, mountains, and glaciers. It’s pretty impressive from the outside but take a look inside too. The admission is free of charge but it costs 1,000 ISK ( to go up to the tower. Tickets can be purchased in the church shop. To save money I would skip it but I’m sure the view from the top shows you a nice view of city.

Address: Hallgrímstorg 101, Reykjavík, Iceland

A Bridge Between Two Continents

The lava-scarred Reykjanes peninsula lies on one of the world’s major plate boundaries, the Mid Atlantic Ridge.  A bridge was built there as a symbol for the connection between Europe and North America. You can drive here and visit the bridge for free.

Address: Bridge Between Continents, Skogarbraut, Reykjanesbær, Iceland

Northern Lights

So if you’re on a tight budget in Iceland, this one is definitely something that you can save a lot of money with if you decide to drive yourself and not go on a tour. But it requires timing and luck to manage to see the Northern Lights in all their glory. You can be extremely lucky and witness them while you are driving home from the Golden Circle, you could see them while chilling in the Blue Lagoon or you could catch them while staying in the lovely guesthouse I listed above.

I can’t predict weather and the Aurora forecast but something I would suggest is choose to stay in Iceland for 4+ nights and go out looking for the lights every night, if by the 3rd night you haven’t seen anything maybe book a tour for the 4th night, but this still doesn’t guarantee you to see them. It just increases your chances as the tour guides understand the cloud cover and the KP index more than tourists do.

I used Aurora Forecast to find out what the cloud cover was for each night and was able to indicate where to drive to. You definitely spend a lot of time looking up at the sky so come prepared and pack a hot drink and some snacks.

Overall, travelling to Iceland on a budget is definitely possible. It’s not in any way cheap, but it’s doable on a student/backpacker budget if you’re smart and you do your research. You do have to remember that many things have to be imported in Iceland, (because it’s so far away from everything) which obviously drives import costs which then leads to inflated prices for simple products. So think of that when comparing Iceland’s prices to other countries. So if you were thinking that you can’t afford to travel to Iceland, think again, and I hope this guide can help you get the most out of your money! I hope you enjoy Iceland on a budget!

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