Click here for a newer development

There's another program that properly applies colors. (Apparently the color tags do not use an RGB system). Find the newer program at the bottom of the linked article.

Anyways, here's the older method

Using this program! (Click here)

credit to @CardZlol for some of these tips

1

Only use images with 1 color.
Images with 2 colors can be used by filling in the "background" option.

2

Set Number of bits per color to the smallest amount, and disable underlines and dashes.

Since this kind of acts like lossy compression, sometimes it can make multi-color images single-color.

3

Remove all color tags, like <#000> or <#FFF>. This will make the text paintable, and will remove glitchy colors.

You can press Ctrl+f to find text easier

4

Use "Anita Semi Square" font
Don't use "Military" font as the site says.

5

Set the width & height of the text label to appropriate measures. It should be the width and height of the image divided by 10, although more might be necesary.

6

You can adjust "mspace" and "lineheight" values to adjust the image. Default values are 1.

Here's a great example from CardZ!