This method does not call for cutting out the appliqué first.  It really helps to have a pair of appliqué scissors for this one, but if you don't have any, try a pair of curved nail or embroidery scissors with a sharp point. Appliqué scissors have a fat blade, shaped like a Pelican's bill.  It is intended to protect the fabric onto which you applied the design.  They are very sharp and pointed.

 Hoop the fashion fabric with a sheet of light wash away / tear away stabilizer.  Place the starched, appliqué fabric, which has been lightly sprayed with adhesive onto the hooped fashion fabric.  Gently press it into place, and rub with a circular motion to get out any air between the layers.  Now run the embroidery design.  When the appliqué fabric is anchored by the first row of stitches, or if you are concerned that it might fray, by both rows of line stitches, carefully remove the hoop from the machine, but do not remove the fabric from the hoop.  Trim the appliqué to about 1/8th inch ( 3 mm)  from the line of stitches. Be careful not to cut the stitches, and don't try to get too close.  The fabric will tend to come apart during the rest of the stitching, so leave a little extra.  Lay a sheet of light weight water soluble stabilizer over the appliqué to hold down fuzzy edges.