No matter what font i choose, when i press enter it gives me a large gap before the next line. If i manually correct the line spacing, it will work. But when set to auto, it always shows a large gap. Screen shot attached. I have checked the paragraph menu as well, and everything is set to 0
Looks like you have something wrong with your leading – it's set to Auto, which is normally 120% of the type size. Check by changing the leading to say 18pt. If so reset the Auto leading by selecting the fly-out menu and selecting Reset Character.
Check the justification setting in the paragraph pallet. It may have auto-leading set to a large number
As a side note, if you have either Illustrator or InDesign, you will find either one of them better suited for this kind of type-heavy work. Build the header in Photoshop if you wish, and place it into the other program before doing the serious typesetting.