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How to cut costs for a trip to Iceland?

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I've seen beautiful pictures of Iceland's natural wonders on the internet, but I've heard everything there is very expensive!
It seems like summer rental cars with unlimited milage are over $100 a day and gasoline might be over $5 a gallon!
What's the best way to cut costs on transportation, hotels and food?
Is it better to buy a tour package to see the country?

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