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Iceland Budget Travel Options

My girlfriend and I are traveling to Iceland from mid-July to mid-August. We are in the middle of planning out the trip and are looking to save on costs as much as we can. We will be camping and cooking our own meals from food purchased at grocery stores. However, the biggest factor we have is travel costs. From what I've read, there is a divide in the travel community on the cost-benefits of driving, busing, hitching in Iceland.

I understand that renting a car is the best way to see the country but a four week rental is well out of our budget. We also plan on hiking a couple of multi-day treks, attending multi-day festivals, and simply relaxing in some cities for a few days. So if we were to rent a car, there will be more than a few instances where we wont even be using the rental car but paying the high daily rate. If we do rent a car, we will be looking to see most sights from the car, cover a lot of ground quickly, and return the car at a different location.

I've read that busing can be very expensive. The cost of two bus "passports" are little cheaper than renting a car (split between two) and still limit us on where we can go. The price of individual trips are more to my liking but may be difficult to plan a trip around. We plan to see the as much as the country as we can.

Then there is car sharing and hitchhiking. The costs involved with this method makes me want to go for it. But I don't know how likely it will be to find a ride that will be the route that we's like on that day (ie. drive from Reykjavik up to the Snæfellsnes Peninsula, then the next day or two find a ride from Snæfellsnes Peninsula to/around the Westfjords, ect.)

As we continue to plan, I see us possibly using all three travel methods. I would love to hear from the experienced travellers.
What sections/areas would best serve for hitchhiking/car sharing?
Where would renting a car for a quick, sights-from-the-car travel be more efficient than other means?
Are buses a reliable option to get between cities? Is it possible we get stuck in places?
I feel hitchhiking, car-sharing around ring road will be reliable. But getting to locations off of ring road is where I worry.
Any advice would greatly appreciated.
Thank you.

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