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Neo Grunge Type Effect

This is a technique I used to create the logo for the band Big Electric Cat, and it makes use of a filter that we don't often get to make use of (the Diffuse Glow filter), primarily because the filter is pretty lame. But luckily, if you apply this filter over white text, it gives it a “sloppy-spray-paint” job that's reminiscent of the neo grunge look. Here's how it's done:

Step ONE. Open a new document, press the letter “t” to switch to the Type tool, and create your type. In the example shown here, I typed in the word “BIG” using the font Compacta. Then, on a separate layer, I typed “ELECTRIC,” and reduced the point size until it was small enough to fit under the word “BIG.” Lastly, I duplicated the “BIG” layer (by dragging it to the New Layer icon at the bottom of the Layers palette), and I then highlighted that copy with the Type tool and typed in “CAT.” I then used the Move tool to drag it below the word “ELECTRIC.”
Step TWO. As you can see by the Layers palette shown here, you'll have three separate Type layers, and as a general rule, you want to keep these layers in their original editable state (just in case). To do that, start by hiding the Background layer from view by clicking on the Eye icon in the first column of the Background layer in the Layers palette. Then, click on the New Layer icon at the bottom of the Layers palette to create a new layer, and drag it to the top of the layer stack. Then, hold Option (PC: Alt) and choose Merge Visible from the palette's pop-down menu (as shown).
Step THREE. Holding Option/Alt creates a merged version from all your Type layers in this top layer with a transparent background. Next, press the letter “d” then “x” to set your Foreground color to white, then press Shift-Option-Delete (PC: Shift-Alt-Backspace) to fill the words “Big Electric Cat” with white (as shown here).
Step FOUR. Go under the Filter menu, under Distort, and choose Diffuse Glow. When the dialog box appears, set the Graininess to 6, the Glow Amount to 10, and the Clear Amount to 15 (as shown), and click OK. This will turn your text black, and add a sprayed look to the inside edges of your type. (Note: For high-res, 300-ppi images, use a Graininess of 9, a Glow Amount of 17, and a Clear Amount of 19.)
Step FIVE. When you click OK the effect is applied to your text. Now, go to the Layers palette and click on the Background layer to make it the active layer (which also makes it visible again), giving you the effect shown here. You can stop right here (as the completed effect) or go on to the next page for a variation on the effect.
Step SIX. Press the letter “d” to set your Foreground color to black, and then make sure you're still on the Background layer in the Layers palette. Press Option-Delete (PC: Alt-Backspace) to fill the Background layer with black. Then, click on your top layer (the type with the effect applied) in the Layers palette, and press Command-I (PC: Control-I) to invert the type, giving you white type on black background (as shown here).
Step SEVEN. Go under the Filter menu, under Distort, and choose Pinch. When the Pinch dialog appears, lower the Amount to 35%. (Note: For high-res, 300-ppi images, increase the Pinch Amount to 80%.)
Step EIGHT. Click OK and the Pinch effect will give your type a perspective look on the top and bottom, completing the effect (as shown here).
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