I have stitched letters on shirts for my daughter and her "family". The following is what I have discovered through trial and error:
For tshirts:
1. Use a heavy-weight cotton tshirt (the ones sold at AC Moore are decent)
2. Use a heavyweight interfacing
For sweatshirts and tshirts
1. Fraycheck the letters before sewing. Dritz FrayCheck won't discolor the fabric or leave a residue.
3. Use a quilting ruler to make sure everything is really lined up and centered; don't just eyeball it.
4. Use Heat and Bond for the fusible.
5. Satin-stitch, don't zigzag. Set your satin-stitch to a longer width than the default setting.
6. Prewash/shrink whatever garment you are going to use. That goes for the letter fabrics as well.
7. Cut your letter templates out of a clear substance (I use the plastic that is used to make quilting stencils) so that you can see how the fabric will look as an actual letter vs. on the bolt.
There are so many novelty fabrics available now that you are bound to find a motif with a theme that is relevent. Unless it's a really tiny print like the 1930's reproduction lines, you may have to fussy-cut the fabric so that the print is really visible.
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....but some are more equal than others.
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