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I've been trying to work out how to do this for ages. This morning I found a tutorial on it via the Modge Podge Rocks blog. To go to the tutorial click here.
A note of caution - if you try it remember to print the words as a 'mirror image' (ie back-to-front) so that they are correct when they are transferred. Have fun!
An additional note: if you can't get Modge Podge which says on the label it is a 'waterbased sealer, glue and finish for all surfaces' and which I've used for decoupage and to seal and strengthen papers I think you could try anything similar. But maybe try it on a scrap first and see what you think.
Here is a link to another technique you might like to try. It uses waxed paper made for transfering images onto t-shirts.
(Acknowledgement - image sourced from www.countryliving.com)