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Hi, I'm having difficulty following a tutorial and could use some help. The image I'm trying to replicate is: type "how to design an epic hipster badge in photoshop" on youtube and you can see it on the thumbnail, no need to watch the video. The guy is using probably a more current version of photoshop while I'm using CS3. I can't seem to replicate it. Here's my image:

[ATTACH]56537[/ATTACH]

I tried using strokes in blending options while lowering the fill of the layer image but I have to cut out the edges that overlap the words (as you can see in the youtube thumbnail). By cutting out the stroke it separates the image and fills up the empty space. Is there any way around this? or another method to do it?