Dramatic scenery, plentiful wildlife and quirky activities means there is plenty to entertain travellers. Here, Helen Raine explains how to explore it on the cheap

If you’re a diehard, €20-a-day backpacker, you might want to stop reading right now and book yourself a trip to Vietnam or Cambodia instead.

Prices in Iceland might have fallen since the banking crisis, but you could never accuse the country of being cheap.

Still, it is possible to go on a (slightly longer than normal) shoestring, as long as you don’t mind a bit of deprivation in the name of budget travel.

Week One – Reykjavik, South and East

Camping is the way to go to keep costs down. Reykjavikcampsite.is has pitches from a reasonable €11.50 a night per person, on a site that offers luggage storage and washing machines for a fee and has free Wi-Fi.

It’s three kilometres out of town and accessible by bus.

As an additional bonus, one of Iceland’s largest geothermal swimming pools is next door.

If you don’t fancy going under canvas, there’s the Kex Hostel, housed in an old biscuit factory.

Dorm beds go for around €15 a night at this ultra-trendy joint.

From here, you simply have to submit to the magnetic pull that the Golden Circle exerts upon all tourists; this route takes in the Blue Lagoon first, for a spot of warm water wallowing, surrounded by the black lava flow of Svartsengi National Park; the iris blue water surges up from 2,000 metres below the earth.

Yes, it’s touristy and, yes, you should do it anyway.

Then there’s Thingvellir National Park where you can snorkel over the very spot where the tectonic plates of America and Europe meet (they’re pulling apart at the rate of one inch per year). Night owls can do it under the midnight sun.

Next up is the Great Geysir; it’s not spouting itself, but Stokkur (Icelandic for “churn”) will be shooting water up to 40 metres every few minutes.

And lastly, there’s the Gullfoss (Golden Falls) waterfall; the water turns gilt in the sun as it falls 32 metres into a crevasse.

Ninety per cent of Iceland’s tourists fail to get more than an hour away from Reykjavik, covering little more than the capital and the Golden Circle.

For intrepid backpackers, though, there’s plenty of scope to get off that tourist treadmill – Route One will show you the way.

If you’re traveling in a group, it might actually work out cheaper to hire a car.

Otherwise, look at getting a bus passport from sternatravel.com or Reykjavik Excursion. They start at around €240.

If you thought Gullfoss was impressive, the 100-metre-long, 45-metre-deep Dettifoss waterfall will really blow your mind

From Kirkjubæjarklaustur to Höfn, you’ll be travelling through a wild scenery of glacial sands, where glaciers descend towards icy lagoons.

Höfn is a good place to camp (www.campsite.is), providing easy access to the Vatnajokull glacier which feeds the Jokulsarlon Lagoon; the opening sequence of James Bond – A View to a Kill was filmed there.

As the glacier melts, the lagoon is getting bigger, threatening to join the sea and cut off the main highway. Icebergs bob in the water – you can take out a boat to get closer and hear the noise of them groaning – and it’s home to plenty of birds.

The East Fjords are next on the route; mountains rear up above quaint fishing villages in natural harbours. The road is dotted with small towns and villages; Djupivogur, in view of the Papey Puffin Sanctuary and the surrounding nature reserve, has some amazing hiking.

There’s camping there too (www.simnet.is/framtid).

Seydisfjordur, guarding a 16-kilometre long glacier, has Norwegian-style painted houses and is popular with artists.

Lake Lagarfljot is a gorgeous place to stop for a break and find out more about the legendary ‘lake worm’ monster that lives there.

Week Two – North and West

If you thought Gullfoss was impressive, Dettifoss waterfall will really blow your mind.

It’s the fiercest waterfall in Europe, 100 metres long and 45 metres deep, thundering into a canyon, which makes it look like it is vanishing into a slit in the ground.

One kilometre upstream, you’ll find Selfoss, a smaller waterfall with a drop of 10 metres. Downstream, the Hafragilsfoss waterfall plunges into a deep canyon: you probably need to drive there. There’s a small campsite at Dettifoss.

Nearby, Lake Myvatn has some truly astonishing volcanic scenery, with lava islands, rock pillars and hundreds of thousands of birds such as Barrow’s Goldeneye, Eiders and Eurasian Teal.

At Husavik, you can take a trip aboard a traditional Icelandic sailing ship with northsailing.is.

The boats seek out whales (minke and humpback are frequent sightings) and also go past Lundey Island to view the puffins (€79).

On the homeward straight back towards Reykjavik, are the Westfjords. The northern end has steep mountains where you can ski in winter and hike in summer.

From the town of Bolungarvík, a clear day will reveal Greenland.

Take a boat from here to the Hornstrandir nature reserve.

In the middle, Dynjandi is a huge waterfall that tumbles down in a triangular cascade.

Nearby Þingeyri village puts the Vikings back into Iceland, with a village and the working replica of a Viking ship.

On the southern shore of the Westfjords, you’ll find Rauðasandur beach, where saffron sand fringes water virtually warm enough to swim in (in Icelandic terms, that means it won’t kill you if you get in – you’ll need to warm up in one of the hot springs afterwards).

One unmissable attraction is Látrabjarg, the westernmost point in Europe. The cliffs here have the highest number of cliff nesting birds in the world.

And then it’s back to Reykjavik to party like you’re in a town the size of Rochdale only much, much colder.

There are plenty of quirky things to do (you have to get creative in the harsh winters) but the Penis Museum (www.phallus.is) tops the list.

Their claim to fame is that they have “a collection of phallic specimens belonging to all the various types of mammal found in a single country”.

They add: “It should be noted that the museum has also been fortunate enough to receive legally certified gift tokens for four specimens belonging to homo sapiens.”

Unmissable after a pint or two of Skjálfti.