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It should automatically handle it. This is from Apple's website:
Backing up to a full disk.
One day, no matter how large your backup drive is, it will run out of space. And Time Machine has an action plan. It alerts you that it will start deleting previous backups, oldest first. Before it deletes any backup, Time Machine copies files that might be needed to fully restore your disk for every remaining backup. (Moral of the story: The larger the drive, the farther back in time you can back up.)
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