I had never stayed in a hostel until my time in New Zealand... and I stayed in quite a few there as well as one in Australia and a few in Spain. I was extremely skeptical since I had never done anything like that before, but the experiences were actually pretty decent! A good portion of the time, I shared a double bedroom with my friend and I don't think I ever paid more than $30 a night. I also stayed in a female-only dorm style room which was really nice and spent a couple nights in a mixed room. The less picky you are, the cheaper it is. :) I know there are some horror stories out there, but I recommend checking ratings on the hostels before booking. I didn't have a bad experience in any of them... some were just better than others. My favorite one that I stayed in that I can highly recommend is Base in New Zealand/Australia. A lot of hostels even provide you with tours (some free) that you can sign up for and explore the city. Some cities even offer FREE walking tours which usually hit the highlights of the city!
Another great way to travel around is through HelpX. It's how I traveled around New Zealand in the beginning. You stay with host families and they will usually include food and accommodation in exchange for working a few hours a day. You do simple things like cleaning or gardening and then you have the rest of the day to explore. It's super nice and it's all done by ratings so you can verify the host listings before you get there. It also provides you with an authentic experience by staying with families. :)
Hostels and HelpX are both wonderful ways to travel around on a limited budget.
I have mixed feelings about hop-on-hop-off tours. It's nice if you only have a day in the city and want to hit the highlights, but you don't often get the authentic non-touristy experience by doing so. Usually the bus price is pretty reasonable and it's an easy way to not get lost. I got into Ireland at 6 or so in the morning and my hotel wasn't ready yet. I had a half a day to waste so instead of using my brain to think about where I was going I just got on the hop bus and took it around the city a few times.
As you can see, there ARE options for travel on a limited budget. You just have to find them. :)
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