We got a credit card with a 0% foreign transaction fee specifically for use in Mexico.
After that, we use ATMs to withdraw pesos at an excellent rate.
At least for us, using pesos saves a ton over dollars, because most places on the street give horrible exchange rates, often 10:1- which is super easy math for a tourist, but over the course of a week, it adds up.
However, where we stayed, Cozumel, there were only a small number of places that took credit cards at all (we were able to prepay the hotel this way), so cash was paramount.
I would not use a traveler's check, and if you plan to, verify that they take them at all.