I've looked through some of the threads and have gotten a few answers, but I still have questions so I apologize if this has been all over here already. 
 

I am cutting out my own stencil of lettering that I then want to paint onto fondant but I'm SO nervous about it running under the stencil! 

My questions are, which is better to create the stencil? Cardstock or mylar/plastic? I probably won't be using it again so I don't mind if it's only a 1-2 time use on the cardstock, but if it comes out better with plastic, I'm ok with doing that too.

What do you use to paint the letters? I've read a few options. Straight airbrush color? I've never used that so I have no idea how thick/thin it is. Luster dust mixed with an extract or vodka or something? For that, I don't know what ratio of dust to liquid to use. Has anyone tried the wilton or duff spray cans with a stencil?

For those of you who have done stenciling with paint and have used a stencil to cut the letters out of fondant, which method do you prefer/think is easier?

Obviously I have NO experience with this so any advice would be greatly appreciated!

I stenciled on a cake the other day and used a cardboard stencil and then I just used a bit of gel food color on a stiff brush and pounced all over the area.  Sort of like stenciling on a wall.  And it came out better than expected!

I haven't tried it myself, but I've seen that you can dip a sponge into gel colors (thinned a little bit by vodka) and gently dab it over the stencil. That way you will have a more even coverage.

I would go with the sponge technique because the sponge would hold the moisture and you can squeeze the tip of sponge in colour and then dab it on .  I think the stockboard would do better.  I find plastic will bead any excess colour.