That's the stuff! You'll only need a small quantity on the pad back plate everywhere it touches the caliper or cage (sometimes called anchor or bracket). That size jar will last many lifetimes. I stay away from the RTV-like "disc brake quiet" stuff. I've seen it overused many times, which can actually bind up pads in the cage, causing them to stick and heat up.
I would never recommend using sandpaper on iron rotors. I prefer a Flex-Hone for the quickest job, which the more informed brake shops would have. If doing it by hand, I use Scotch-Brite and plenty of elbow grease. Get it at your local grocery or hardware store (or under the kitchen sink when the domestic operations manager isn't around!). You do not want to remove iron, just the pad transfer layer.
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