We plan on traveling all of chile by bus and want to know the best way of doing that?
What places do we hit along the way to Santiago?
I wouldn't spend ore than a day or so in Arica, but for the the Parque Nacional Lauca. As presumably you don't want to spend too long on the bus, the next stop could be Iqueque then San Pedro worth a few days. The perhaps Antofagasta, Taltal, Parque Nacional Pan de Azucar, Copiapo, Vallenar, La Serena and the Eqlqui Valley worth a couple of days, after that it is Santiago.
Can we take our backpacks on the bus with us to avoid anyone taking them?
And do we need a local to buy bus tickets to our destinations ?
Luggage in the hold of busses is safe. You can buy tickets in the bus stations in Chili.
A day or two should do it. There's a Peruvian flavor to the place (it use to be part of Peru) so check out the arts and crafts markets. The Moro fort/army museum is worth a visit, as as the mummies and museum about a 20 minute drive from town and the hillside "signposts" carved centuries ago that you can see along the way. The best place to stay is the Panamericana Hotel on the outskirts.
If you might be happy with a hostel, rather than a hotel, look up Hostal Tres Soles - reviewed on this website. The proprietor, Adolfo, is a great host, tremendously helpful, and the hostel is basic but clean.
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