So first off, I picked up a 1981 miyata 710(camel beige) which I have been trying to get in the best condition possible, which is turning out to be a huge money sink. I have little road bike experience. The first question is how can I clean up my handle stem. It is listed as SR alloy in the catalog, and it doesn't seem chromed. It is a dull color, no red rust but has small deposits all over it. I attempted to clean it with aluminum foil as I have with the chromed parts but the area I tried left small scratches . The paint is pretty decent, there are a few nicks where rust has formed, and I was wondering the best way to remove it and seal it. They are small so I was thinking there could be a better choice besides removing it with steel wool and risk scratching up the paint around it. I do have some rust converter laying around, that stuff that makes rust turn black which I thought about using. Anyone have experience with that type of product on their bike?

I believe my options when it comes to painting it would be:
rust converter, prime, and then paint (nail polish?) or just clear coat and not risk an imperfect match and leave it black underneath (from the converter)

some kind of rust removal(chemical or by abrasion), primer, then paint

I'd like to not have to buy too much more, as the total cost is above 400 and I haven't even repacked the hubs yet.

I use choreboy copper scrub to remove rust - it can be found in most supermarkets and it doesn't stratch. I then clean and touch up with a coat of clear nail polish. I would avoid touch up paint. Nailpolish can be removed if the color doesn't match - but sometimes touch up paint can make the frame look worse.

SR stems can be found pretty easily on e-bay and are really not that expensive (maybe < $20). It it were me - I would just replace it.

Pictures may help...

I'm not going to touch the paint questions, those are well covered here by others with more experience. My bikes are either repainted or have scars.

The alloy stem is another thing entirely. Dull, unanodized aluminum can be polished pretty easily. Almost any metal polish will do with either elbow grease or a buffing wheel. The first test is to try a bit of polish (mothers, simichrome even brasso) on a rag and rub a spot. If this produces black smut and a shiny spot then just keep going. If you find that the whole thing or parts of it don't respond this way then it was anodized and some or all of the anodizing remains intact. The answer to that is to remove the anodizing and then polish. Oven cleaner, the old-style with the warnings about fumes and rubber gloves is the stuff. Spray it on, watch it work, scrub and rinse it off after some minutes. Then polish. If the piece is pitted or really spotty you'll want to level it with sandpaper before polishing. Start with something like 400 grit, then go 600, 1000 and then polish.

Your SR stem is made of an aluminum alloy, and was not 'chrome' plated. Such alloys don't 'rust' red like iron, but they do corrode leaving a whitish surface and a deeper hidden damage (granular) that could lead to structural failure down the road.

The aluminum foil trick works on chrome coated steel, but will only stratch & damage aluminum. I use either an aluminum paste polish, such as Mothers, on a fine scotchbright type pad, or a cotton wade cleaner called NeverDull. Both can be found on the automotive aisle at your local big box store.

For minor paint damage, I use the tip of a fine tool, or a little bit of sandpaper to lightly remove the course rust, then seal the surface with touchup paint (primer first is best, but I sometimes skip it...). I like the Zig Painty pens, as their fine tips allow precise color application into the chip. A few layers and a little buffing produces a great repair.

Waterford provides and instruction sheet with their touch-up paint kits, and it recommends removal of light surface rust with a clean, ordinary ink eraser before applying the touch-up paint. I've followed their instructions with excellent results.

First I remove decals that annoy me.
Rust on frame, Wal-Mart rust remover with a toothbrush, follow the directions.
Then I wipe if very thoroughly with a WD-40 rag, then I wash it.
Touch-up on frame, I like spray enamel, into a cup, appllied with a q-tip. Many coats to fill, so be patient.
Then I use a little cheap rubbing compound and then Kit or Turtle wax, buff it out good.

Stems, I use metal polish and elbow grease, 000 steel wool, maybe a dremel tool with a brillow tip. Then I hand-polish with an old towel, then a t-shirt. If it takes 2 hours, and a nicer stem is $20 plus $5 shipping, that's $12.50 and hour. Good part-time work.

I use the same polish on FD/RD/calipers and levers if they aren't anodized, cranksets, too, but they're often coated with something.
The rag or cloth will generally do, I've not had a need for steel wool on many components besides seat posts and stems.

It depends how far you want to go. Clean? Clean, rust-free? Clean, rust-free, shiny? Immaculate? I stop at "looks pretty nice" and go ride.

Thank you for the tips so far guys, no have experience using the black rust converter stuff? If I decide that color matching is going to be too hard and end up making it look worse, should I still use a primer on areas where I have removed the rust before applying clear nail polish?

And back to the handlebar stem. The area that I attempted to use foil on is in a visible area, will it be very noticeable after polishing? I'll provide pics when I get home today.