Keep in mind that the size of the cups that you choose will partially determine the size of your letters. How tall your cups are will roughly correspond with how thick your letters will be. Likewise, you will need to make each portion of your letter at least as wide as the mouth of your cups.
You can decorate your letters with washi tape, paper flowers, or beads. Sequins are also a nice decoration. For a quicker and easier option, you can take sequin trim that is used for making costumes. You can even foil or marble your letters. The possibilities are nearly endless!
You may also use other types of paper. Just make sure that the paper is thick enough to hold a shape (unlike tissue paper) and easily folded (unlike thick cardboard).
As an alternative, you may always print out plain white letters and decorate them by hand before folding. However, using an image editor will guarantee uniformity between your letters and make them look more professional.
When using a hobby knife, be sure to work on a protective mat to keep from ruining your table.
