For budget accommodations backpacker hostels are a good option, and there are now quite a few in Cusco . The most popular are The Point (Meson de la Estrella 172, tel. 084/25-2266, www.thepointhostels.com , US$8–11 dorm, US$12–15 d) and LOKI Inkahouse (Cuesta Santa Ana 601, tel. 084/24-3705, www.lokihostel.com , US$8–11 dorm, US$27 d private bath).
Both have locations in Lima and Máncora, dorm rooms (and a few private rooms) that open onto TV rooms, Internet stations, shared kitchens, and bars. They have a reputation for their parties and you are bound to meet other travelers.
Youth Hostal Albergue Municipal (Quiscapata 240, San Cristóbal, tel. 084/25-2506, albergue [at] municusco [dot] gob [dot] pe, US$5 dorm, US$7 d), part of Hostelling International, has great views from the balcony, clean bunk rooms, and a shared kitchen. A discount is given to youth hostel members.
Pirwa Backpackers (Portal de Panes 151, tel. 084/24-4315, www.pirwahostelscusco.com , US$7.50–10 dorm, US$12.50 d) has four central locations: the Plaza de Armas, Suecia, San Blas, and San Francisco. They all have a variety of dorms and private rooms, most with shared kitchen, common rooms, and a tour/travel desk.
Samay Wasi (Atocsaycuhi 416, tel. 084/25-3108, Siete Angelitos 675, tel. 084/23-6649, www.samaywasiperu.com , US$7–9 dorm, US$20 d) has two great locations in San Blas. Both offer shared and double rooms and nice gardens. At Siete Angelitos ask about their star room famous for its views.
Probably the best value for money is Inti Quilla (Atocsaycuhi 281, tel. 084/25-2659, www.intiquilla.8m.com , US$7 d shared bath, US$9 d private bath, breakfast not included). Also in San Blas, this very basic but clean hostel has two triple rooms and five double rooms around a nice, sunny courtyard. Some rooms have private bathrooms and there is 24-hour hot water.
El Balcón Colonial (Choquechaca 350, tel. 084/23-8129, balconcolonial [at] hotmail [dot] com, US$7 s, US$14 d) is a bed-and-breakfast with five clean rooms with firm beds. One has a private bath, and there’s a small shared kitchen with breakfast tables, a computer with Internet, and a very friendly and accommodating owner.