The Belgian playmaker has just 18 months left to run on his contract and recently admitted it is his dream is to play for Real Madrid.
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Chelsea refused to sell the 27-year-old in the summer transfer window and the decision has paid dividends, with Hazard topping the Premier League scoring charts with seven goals this season.
But former Blues midfielder Ballack, who played at Stamford Bridge for three years between 2006 and 2009, thinks the club need to show their star player how integral he is to achieving their ambitions.
“You have to pay him a lot of money!” Ballack told Goal. "But more importantly, you have to give him a vision.
"You have to tell him how important he is, ask him what he wants from the club and to give him a little bit more responsibility.
"You need to find out what he wants as well, ask him if he’s happy. Of course, you want to win something and be as successful as possible as an individual player. It is normal to look around and think, 'With what club can I achieve that with?'
Hazard's brother Thorgan said earlier this week that he made the right decision to stay at Stamford Bridge but Ballack suggested only the player himself knows if he will remain in west London.
"Everyone who loves Chelsea wants Hazard to stay," he added.
"Chelsea is an ambitious club and it will always be possible that a coach and the players are competitive at the highest level.
"Only he can give the answer of what he wants for himself, his ambitions for the club and give signs."