Finding a comfortable and affordable place to stay in Colonia is easy: Colonia hotels (Uruguay) are all pretty unique. This cute and quaint town thrives on weekenders looking for some piece of mind. To that end, there are many bed and breakfasts to choose from and even some rustic cabins located a ways outside town.
At Posada del Bosque, the calm of the area makes it a perfect place to enjoy your stay in Colonia: they have 10 rooms with private bathroom and breakfast included (starting at $25 a night).
Colonia hostels too are pretty good: El Viajero Hostel, located in a 19th centruy building just 700m from the port, has rooms beginning at $11 a night. The friendly staff can arrange horseback riding trips and bikes rental for you.